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

Weather has been the driving factor helping to spur the Class III futures higher during the past couple of months, but even the prospects of a continually worsen drought couldn’t keep the Class III futures from selling off yesterday. 

The trading day started slow, with 2012 prices less than 10 cents on either side of unchanged until the drop in the barrel price during the spot session. 2012 settlement prices ranged from five to 28 cents lower in an active trading session, as market longs took profits and balanced positions before today’s Milk Production report from USDA. The Class III market has been in a bullish upswing for roughly 2 ½ months and looks to remain so, though occasional corrective bouts should be expected. For now the market will look to the upcoming Milk Production report to determine price action in the near term.

A wild trade day in the grain markets, as prices swung from higher to lower in the early trade, only to surge higher into the close. The Dec12 corn managed to settle 13 cents higher at $7.84 ½, rallying hard from an intraday low of $7.55 ¾.  The soybeans led the charge higher with the Nov12 contract settling 29 ½ cents higher at $16.20, an impressive 44 cents from its intraday low. 

Weather concerns continue to dominate the market, as scorching temperatures remain in the forecast with little chance of soaking rains. August is the vital month for soybean crops, with the now absent rains needed to help fill out the soybean pods. Adding to the bullish market alignment was the statement by Margo Oge, director of the EPA’s Office of Transportation and Air Quality, to a House Energy and Commerce Subcommittee on Tuesday announcing that the EPA is “absolutely not” considering waiving the renewable fuels standard (RFS2) due to the drought conditions that have reduced the corn crop. 

Daily CME spot market prices:

Block cheese: $1.72 (unchanged)

Barrel cheese $1.6975 (down 2.75 cents)

Butter: $1.58 (unchanged)  

Grade A NFDM: $1.29 (unchanged)

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