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

Despite a weaker CME spot cheese session, Class III prices got a slight boost Thursday from continued strength in butter, powder and Class IV markets. But the trade was a reluctant follower, at best, as indicated by volume. Only 482 contracts traded hands as 2011 prices gained 0.05 to 0.18. That lack of volume is primarily caused by two things: (1) it’s a quieter, shortened holiday week and (2) Class III futures are caught in a choppy trade between sluggish cheese demand and firming Class IV product prices. 

While our expectation was — and still is — for more price pressure on barrel cheese, it was the block market that came under selling pressure Wednesday. Blocks lost 2 cents on 11 trades, ending at $1.60; barrels finished unchanged. More pressure on cheese here to finish out the week, and the light-volume rally of the past two days is in real jeopardy of losing steam and turning lower regardless of what price moves prevail in Class IV.

Cash cheese futures were silent yesterday. Only the posturing of bids and offers led to a slight change in settlements, with June leading the way 0.01 higher on the day. Futures continue to carry a premium to the current spot market prices and have a long way to go to give back the premium they are carrying. The premium in the forward curve continues to suggest that traders are expecting higher cheese prices, as June is priced at $1.73. 

Soybeans and wheat finished off their highs Wednesday, but did not see the heavy selling pressure of the corn market. Soybeans finished the day 11 ¾ to 15 ¾ higher, while wheat closed out ¾  lower to 10 ½ higher.

The terrible disaster of last month in Japan has not proven to be a boon for commodities — yet.  Recently released Japanese customs data showed March grain imports at just shy of two million tons, down 16.6 percent from March 2010. The U.S. shipped 1.466 million tons of those imports, nearly equal to March 2010 shipments. Total March soybean imports of 238,000 tons were down 9 percent from last year, while soy imports from the U.S. fell 11% from last year to 204,000 tons. We attribute much of that to logistical problems which will get resolved, and with pending reductions in tariffs for foodstuffs, Japan will become a major food buyer on the world market this year and for the foreseeable future.

We look for corn to open 4 to 6 cents higher and beans to open 3 to 5 higher

Daily CME spot market prices:  

Block cheese:  $1.60  (down 2 cents) 

Barrel cheese:  $1.5825  (no change) 

Butter:  $2.00  (no change) 

Grade A NFDM:  $1.6125  (no change) 

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Source:  FCStone/Downes-O'Neill