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

Another very quiet day in the class III market yesterday as futures prices are losing steam to the upside. A total of 794 trades occurred on the day and only two months saw over 75 trades, May and June, which were down 15 and 13 respectively. Other months were steady to eight cents lower, as noted on light volume. Consolidation continues to occur between spot and futures with only spot barrels inching higher Wednesday. 

 It looks as though a short-term top may be in for both May and June, as both have fallen 30+ cents from Friday’s highs. We suspect the convergence will continue in the dairy markets, though we’re not sure that the spot market has much more room to the upside for the time being.  Even if spot continues to crawl higher, we have to ask whether or not the futures trade will want to keep such premiums to spot. It is unclear, but futures are overbought at current levels.

Bi-weekly international prices will be looked to for a sense of possible continued strength in exports on the heels of very strong USDA/FAS data showing total export volume up 41 percent vs. year-ago levels in February and cheese exports at a record 5 percent of total U.S. production in the first two months of the year. One caveat: that is export data from February, not today.  Today, export business appears markedly quieter.

Corn and beans reversed the slide they saw over the last two days and rallied on the open. That strength faded by noon when the trade turned lower, but they fought their way back and settled three cents higher in May, while December settled 8 ½ cents higher. Beans largely followed the trading pattern in corn and settled 3.75 cents higher in May and 7.25 cents higher in November.

Grain bulls have had their work cut out for them here over the past two days or so. In addition to short-term technical weakness and Goldman saying it’s time to take profits on long commodity positions, Informa weighed in late yesterday announcing that U.S. Farmers will harvest 13.9 billion bushels of corn in 2011.  Sure, they cut 2010-11 ending stocks to 575 million bushels, but the trade is leaning more heavily on their production forecast. 

We look for corn to open 7 to 9 cents lower and beans to open 8 to 12 lower.

CME spot market prices:

Block cheese:  $1.6275  (no change) 

Barrel cheese:  $1.5975  (up 3/4 cent) 

Butter:  $1.9975  (up 1 3/4 cents) 

Grade A NFDM:  $1.66  (down 1 cent) 

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Source:  FCStone/Downes-O'Neill