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

All week, the possibility of $2 block cheese has been discussed, and yesterday we saw possibility turn into... dum, dum, dum... reality with blocks settling at the $2 level. 

That being said, although we are at 2012 yearly highs ― and a level not seen since Nov. 16, 2011 ― one must wonder if we will see a repeat of the 2011 tumble shortly after reaching $2.00. Although we are still bullish, yesterday’s futures market may be second-guessing the current move ― at least temporarily ― as futures settled anywhere from -.14 to +9.  It looks as if the market is suspecting that we will now come off this $2.00 level if yesterday’s move is any indication. However, as we have said over and over again, every bull run needs a break and this $2.00 level may have some questioning whether demand destruction will come into play and, if so, to what degree ― especially since GDT numbers pegged cheese at $1.63 this week.

That being said, we do not think this is a tipping point for several reasons, including severe milk tightness in California and domestic demand that, while surprising, appears alive and well for immediate needs. Based on these alone, one can argue that this market still has some legs. This move seems to be a “cooling off” moment in an overall bull market, but understandably it makes traders weary.

Corn may have found temporary bottom in this week’s sell-off, but the newly established downtrend in the soybean market is just heating up. News is rather quiet and harvest pressure mixed with new speculative selling has kept a tight lid on grain prices all week. Corn futures prices were quite resilient in the face of another 50-cent drop on soybeans. Soybean futures could tug corn lower, but  two points that may slow the sell-off is (1) farmer selling got a little sluggish for corn on Thursday, and will likely get that way for soybeans and (2) the trade will also begin gearing up for the Sept. 28 USDA Stocks Report. Nevertheless, the trend on grains is sideways to lower for now.

We look for corn to open 4 to 6 cents higher and beans to open 8 to 12 higher.

Block cheese: $2 (up 5 cents)

Barrel cheese $1.94 (up 3.5 cents)

Butter: $1.89 (up 2.25 cent) 

Grade A NFDM: $1.69 (unchanged)

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