Editor’s note: This market commentary is provided by the Dairy Division at FCStone in Chicago, Ill.

The Class III market hit a headwind Thursday and continued to sell-off to close out Friday’s session. Just 909 contracts exchanged hands, while Open Interest increased by a mere 40 contracts. A confluence of overbought technical conditions and the first lower close for block cheese since March 26 combined to stir sellers.

Still, when the dust settled last week, our lead contract of May gained 26 cents over the prior week, while June and July gained 10 cents. Albeit higher than week-ago pricing, the behavior of the contracts illustrates that the past two weeks has really served to flatten the forward futures curve. And the aggressive flattening of the forward curve tells us that the recent rally has likely matured for the time-being.

Spot session results:

Block cheese: $1.88 (down 0.5 cent)

Barrel cheese $1.77 (up 1 cent)

Grade A NFDM: $1.785 (unchanged)

Butter: $1.7875 (unchanged)

The grain complex finished mixed Friday as corn prices nudged a nickel higher and soybeans lost around a dime. Corn prices have largely chopped sideways during the course of last week as traders try to balance a still tight old-crop balance sheet, better ethanol margins recently, and a delayed start to planting against continued signs of a slowdown in both export and livestock use due in part to the Bird Flu epidemic in China and poor Q1 margins here at home. 

We expect volatility to remain high as traders are trying to sort out how wide spread poultry demand will be hurt, how much pork will pick up the slack and, of course, how planting goes over the next week here in the U.S. 

While we remain bearish of the grain complex in general, we do not rule out swift weather rallies between now and mid-June.                                               

We look for corn to open 5 to 10 cents lower and beans to open 5 to 10 lower.

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