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

Milk futures spent most of Wednesday’s session testing downside support. Volume was light early with a handful of trades occurring double digits lower. Futures attempted to rally as the morning drew along. But without sparks from the CME spot cheese market, the fire was unable to ignite. Following the spot cheese market, traders turned their attention to outright cheese futures activity.

That particular market was well bid near unchanged early. Yet once a 10 lot at $1.95 in the November Cheese was sold, it appeared to break the gates to lower price movements not only in cheese futures, but also in Class III, as right after that Class III contracts through April began to test the next level of downside support as well. Ultimately, Nov12 Class III would trade 27 cents lower intraday before finishing down 19 cents to $19.88 (still the highest class III futures price on the board). Class III futures for calendar year 2013 settled down 4 cents to $18.73/cwt.

The grain complex saw a very weak session Wednesday ahead of crop production estimates from both FCStone and Informa. News was relatively light during the session, but futures persisted in trading to the downside from the onset, led by soybeans which are experiencing basis weakness, and it appears a softer cash market is pushing the fund and spec money to the sidelines. Soybeans settled down 20 ¾ to 1747.50; corn dropped 14.5 cents to 790.75, closing once again below the $8.00 mark. Wheat finished down 21 at 867.75. Informa has said that Friday morning they will release two estimates of production, one using the Aug. USDA acreage and what they expect the USDA to say next week on yields, and another incorporating larger acreage and their final yield estimate, which has many participants expecting a larger final production number than USDA is currently using.

After the close FCStone estimates were released with corn yield at 121.4 and soybeans at 36.7. Assuming no change in acreage, that would leave corn production over 10 billion bushels.  Overnight, the FCStone estimates turned soybeans lower as they dropped to double-digit losses by 10 p.m., though corn remained mostly unchanged to slightly higher. We will be closely watching the market for buying opportunities in the coming week ahead of the USDA report, particularly for option buying opportunities to take advantage of lower volatility.

We look for corn to open 4 to 8 cents higher and for beans to open 2 to 5 lower.

Daily CME spot market prices:

Block cheese: $1.82 (unchanged)

Barrel cheese $1.7775 (unchanged)

Butter: $1.87 (up 1 cent) 

Grade A NFDM: $1.70 (unchanged)

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