Editor’s note: This market commentary is provided by the Dairy Division at FCStone/Downes-O'Neill in Chicago, Ill.

The Class III futures market got a jolt despite more declines on the spot market. The spot market continued to decline with blocks dropping 2 cents to settle at $2.0350 with eight trades and an offer left uncovered, while barrels settled at $2.1025 on no activity. Class III’s futures responded, though not quickly, by jumping anywhere from 18 to 30 cents from August through November, while all other contracts going forward were steady to 9 higher. Volume was solid with 975 contracts traded.

It was an additional buyer in the spot market and the possibility of further quantitative easing per Mr. (Federal Reserve Chairman Ben) Bernanke’s comments that propelled Class III prices higher, though the timing of the rally in Class III futures had little correlation to any of the above stories, as most of the gains were posted just after the noon hour — well past the time when these stories hit the market. Futures prices tested and held levels of resistance, however, so we expect prices to retreat lower today.

Cash cheese futures saw 12 contracts trade with prices 0.008 cents higher in August, while all other months were steady.

This morning, we look for Class III to open mixed.

Following on the heels of overnight strength, grains briefly saw a limit-up move on a midday weather report that extreme heat in the Upper Midwest is expected to linger for an extended period of time with little rainfall on the horizon. If that wasn’t enough, Bernanke’s testimony prior to the opening of the grain markets indicated that additional stimulus would be coming if the economy remains stagnant. This promptly sent the U.S. dollar plummeting beginning around 9 a.m. By the time the grain markets opened, the dollar had lost roughly 500 points and was in free-fall, losing 300 points in the next 30 minutes, with fears that the U.S. will devalue the dollar, overshadowing the sovereign debt fears that have been crippling the Euro. All of this helped push corn in December 21.75 cents higher to settle at 679.75. Beans picked up 20.5 in July to close at 1387, while November finished 21.5 higher to 1379.75.

Earlier this week, we saw Chinese officials openly question the USDA’s acreage numbers. Like many in the industry, they are skeptical that we actually got all the acres the USDA reported. The Chinese have lost 20.3 million acres over the last 12 years, as drought and industrial expansion have taken a toll on farmland. Inflation over there is the highest since 2008 — they’ve been increasing imports and are expected to import 5 million MT’s of corn this year. They’ve been trying to keep purchases quiet while jawboning prices lower, but how many times can you see major shipments go to “unknown” buyers before the market figures it out? They’re sitting on a massive reserve of U.S. dollars, spending it to buy some grain and to rebuild the reserves they’ve been depleting to keep prices under control.  We shall see what export sales look like this morning.

We look for corn to open 3 to 5 cents higher and soybeans to open 8 to 10 higher.

Daily CME spot market prices:

Block cheese: $2.035 (down 2 cents)

Barrel cheese: $2.1025 (unchanged)

Butter: $2.03 (unchanged)  

Grade A NFDM: $1.625 (unchanged)     

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