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

The 20+ cent block/barrel spread from earlier this month has finally fallen to a level within proximity of the “normal” 3-5 cent range. In fact, with CME block cheese down 2.5 cents Wednesday to $1.7550 on four trades and barrels up ½ cent to $1.73 on 12 trades, the spread is only 2.5 cents. Earlier this month, many cheese buyers were bearish barrels, but unsure of block prices. They anticipated the spread closing, but with sub $1.70 barrel prices. With support in the barrel market this week, and with the return of the historical spread, buyers were very active in milk and cheese futures yesterday.

Post spot market, Class III futures were able to advance as much as 30 cents in the June13 contract and 36 cents in the July13 contract. Most second-half futures were also up more than double-digits. The May through December average would finish yesterday’s session up 16 cents to $18.55 per cwt.  The average is currently in the middle of its Feb 26low of $17.97 and its April 17 high of $19.21.

Current CME spot block/barrels prices, alongside the most recent AMS weekly average for whey, yield a Class III price of $17.75. The 70+ cents of premium across the remainder of the year show just how optimistic traders are. May to December cheese futures settled Wednesday’s session +.99 cents at $1.8332 per pound. Deferred contracts remained stable, while oversold front months saw additional short covering and fresh buy-side interest yesterday.

International fundamentals were keys to cheese and Class III averages making their respective highs mid-April, and the lack of export interest at those higher prices, were key to its pressure since. Low $1.70 block prices have, however, spurred extra interest in domestic cheese. With the CWT announcement Tuesday and the lack of any cheese offered on the GDT yesterday, global demand should continue to stabilize CME spot prices.

Spot session results:

Block cheese: $1.755 (down 2.5 cents)

Barrel cheese $1.73 (up 0.5 cent)

Grade A NFDM: $1.68 (down 2 cents)

Butter: $1.595 (up 0.75 cent)

Better weather prospects and talk of improved plantings pace put some pressure on new crop corn prices, but technical support at $5.30 is still holding. Look for talk of improved planting pace to continue as the dominating theme amongst traders the rest of the week.

This morning, we look for the grain complex to open firm.

The trading of derivatives such as futures, options, and swaps may not be suitable for all investors. Derivatives trading involves substantial risk of loss, and you should fully understand those risks prior to trading. Any reference to past performance is not indicative of future results. All references to futures/options trading are made solely on behalf of FCStone, LLC. All references to swap execution and bi-lateral swaps are made solely on behalf of INTL Hanley, LLC. FCStone, LLC will clear swaps when applicable. Swaps are only available to eligible counterparties. All observations of economic, political and/or market conditions are not intended to refer to any particular trading strategy, promotional element or quality of service provided by INTL FCStone Inc. and its subsidiaries and should be construed as market commentary. All recommendations to buy or sell a specific derivative or forecasting statements regarding market activity and the pricing thereof should be construed as a solicitation in any jurisdiction in where such an offer or solicitation would be legal. Proper context and guidance including but not limited to the particular trading objectives, financial situations and the needs of the intended audience were taken into consideration when this recommendation was prepared. Contact your account representative for specific advice to meet your specific trading preferences or goals. These materials represent the opinions and viewpoints of the author, and do not necessarily reflect the viewpoints and trading strategies employed by INTL FCStone Inc. and its subsidiaries. Sources of information believed to reliable were used in preparing such observations, and no guarantee or representation regarding the accuracy of those sources has been made. INTL FCStone Inc. and its subsidiaries are not responsible for any redistribution of this material by third parties, or any trading decisions taken by persons not intended to view this material.