Editor’s note: This market commentary is provided by Dave Kurzawski and Eric Meyer, risk-management consultants with FC Stone/Downes-O’Neill, Chicago, Ill.

Class III milk futures opened the week lower on light volume, only to see most of Friday's gains given back after the CME spot cheese market headed back below the $1.40 mark in both blocks and barrels.

Buyers did not show up to acquire product at the exchange until offers brought the price lower. A total of six blocks traded and there was no barrel volume yesterday. During the spot market activity, futures traders hit the 3rd quarter aggressively, taking August prices down as low as 25 cents before bouncing off the lows. Little fundamental news is keeping futures traders' focus squared directly at the CME spot market for price direction.

Overnight, Class III futures are trading unchanged to seven cents higher on moderate volume and we look for the market to open steady as the market waits for their daily dose of 10:45AM spot cheese market activity.

We noticed that 2011 Class III futures activity picked up yesterday and at least 11 contracts traded in every month January-December. While it is a little early to see commercial end-users locking in full-year 2011 contracts, we also believe that prudent cheese buyers see long-term futures prices as an excellent opportunity to lock in a sub-$1.60 price going out over 18 months into the future. We do not believe this opportunity will last very long as we expect spot cheese prices to pick up at least a little steam during the 2nd half of 2010.  

Both CME spot butter and NFDM did not trade yesterday, but there was a big difference in their futures trading volumes. While butter futures did not post a single trade yesterday, NFDM futures saw 66 contracts exchange hands in a variety of months. While June futures were bid a penny higher to $1.28, Jan 2011 futures settled at $1.1675 (down 1.75 cents), the current low on the futures board. Commercial buyers continue to be interested in the current futures price levels, but sellers have been very willing to hedge future production going out as far as March 2011 at prices below current value. Broad fundamentals on NFDM appear weak with burdensome EU intervention stocks still looming over the global marketplace.

Friday was the deadline for postmarked bids for CWT's upcoming herd retirement program, and we should expect an announcement over the next handful of days as to how many cows have been selected to participate in that program. In the meantime, CWT continues to assist its members with cheese exports. Yesterday they announced another eight bids totaling 405 metric tons (892,872 pounds) for delivery between July and October.  

Tomorrow morning, the USDA will release the Acreage report that will provide a clearer picture of how much was planted this spring. Average estimates put corn at 89.3, soybeans at 78.2 and wheat at 52.8 million acres. The quarterly grain stocks report will also be released tomorrow morning and average estimates are for corn to be 4.6 billion, beans at 594 million and wheat at 940 million bushels. We will provide our two cents of the reports in tomorrow's morning commentary.

http://www.cmegroup.com/daily_bulletin/Section04_Agricultural_Soft_AltInvestment_Futures_2010123.pdf

6/28  Class III Futures:   Volume:  770  Open Interest (OI) Change:  +241  Total OI:  29,365
6/28  Class III Options:   Est. Put Volume:  123   Total OI:  21,490   Est. Call Volume:  203  Total OI:  20,627
6/28  Spot Markets:   Block Cheese $1.3975 (DOWN 1 1/4),  Barrel Cheese $1.38 (DOWN 1 1/2),  Butter $1.72 (UNCH),  NFDM: A $1.25 (UNCH),  X $1.2450  (UNCH)
6/28  Other Dairy Futures Volume:   Butter:  0   Dry Whey:  13    NFDM: 66    Class IV:  0  

CHEESE:  5

6/28 Individual Cheese Futures Prices, Change, Volume & Open Interest
Jul - $1.423               UNCH                Vol:  0                OI Change:  UNCH
Aug - $1.471        UNCH                Vol:  0                OI Change:  UNCH
Sep -$1.535        UP .002        Vol:  1                OI Change:  UP 1
Oct - $1.55              UNCH                Vol:  1                OI Change:  UNCH
Nov -$1.54             DOWN .005        Vol:  3              OI Change:  UP 3
Dec -$1.545       UNCH                Vol:  0                OI Change:  UNCH

6/28 Individual Class III Futures Prices, Change, Volume & Open Interest
Jun - $13.61       DOWN 2        Vol:  4                OI Change:  UNCH
Jul - $13.38        DOWN 17                 Vol:  157                OI Change:  DOWN 2
Aug - $13.66      DOWN 19        Vol:  193         OI Change:  UP 48
Sep - $14.45       DOWN 19                Vol:  137          OI Change:  UP 61
Oct - $14.65       DOWN 3                Vol:  37                OI Change:  UP 18
Jul-Dec 2010 Avg:  $14.17                      DOWN 0.13/cwt
Jan-Dec 2011 Avg:  $14.48                   DOWN 0.02/cwt

Source:  FCStone/Downes-O'Neill