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

Cheese futures and Class III milk futures have been chopping violently of late, hitting resistance level and failing and now once again hitting support prices and bouncing. This has created a difficult technical scene to interpret as technical signals have shifted from buy to sell almost daily as we chop largely sideways on Class III. 

Volume registered another slow post-Memorial day trade at only 890 contracts and Open Interest increased as prices pushed higher ― effectively showing that more new positions were added on yesterday’s strength. Normally, there would be an ‘Open Interest’ argument to be made for direction of price and Open Interest, but we’ll save that as both higher and lower trading days this week have shown increases in Open Interest. 

Spot cheese continues its march up as buyers are the aggressors. We ought to expect them to be back at the buying today, but sellers of both block and barrel cheese attended yesterday’s session and we expect that any buying today will be met with more offers of product at current levels.  Recent increases in spot cheese prices may also serve to shut off recent strength in mozzarella exports we’ve heard about. Weekly cheese cold storage holdings were unchanged. Class III volume hasn’t hit the 2k mark since March 23. Cheese futures have made up some of the missing volume, but not all.

Regarding grains, how could outside markets not weigh on the grain complex? Crude dropped over $3 and fell below $90 a barrel finally; the U.S. dollar soared, the U.S. equities plunged. In fact, the Dollar Index pushed to its highest level since September 2010 as traders continue to move to safety. Weather didn’t help bullish arguments, either, as favorable forecasts continued to roll in expecting much needed rain. All that being said, the grain markets held up pretty darn well as corn flirted up and down all day as beans lost about 12 and wheat fell only a few cents. We look for further price erosion, but we still have a lot of growing season and we should expect grain price strength if outside market pressures lighten.

We look for corn to open 1 to 2 cents lower and soybeans to open mixed.

Daily CME spot market prices:

Block cheese: $1.60 (up 3 cents)

Barrel cheese $1.5275 (up 2.75 cents)

Butter: $1.40 (up 0.75 cents)  

Grade A NFDM: $1.1575 (unchanged)

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