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

On Thursday, futures prices came out of the gate strongly with prices moving sharply higher on large volume prior to the spot session. September climbed all the way to 20.90 at one point — up 35 cents. However, prior to the spot open futures were off of their highs and when the spot market saw an offer in the barrels above the market and an unchanged offer in the blocks both go unfilled and no bid posted, both the volume and the price eased.

As the day wore on, what appeared to be continued commercial buy interest entered into 2012 months, pushing them higher and putting their gains in line with the nearby 2011 contracts as well. Ultimately, 2011 futures months were 7 to 16 higher, and 2012 saw double-digit gains from Feb through Aug and every month higher by 5 to 19 cents. Volume reached just over 1,200 contracts on the day. 

A lack of upside price movement in spot doesn’t mean that futures have to fall as we continue to price steep discounts into the forward curve. However, buying nearby futures at current levels without the added stimulus of a higher spot market is dangerous and ill-advised today. Producers ought to have sufficient protection through year end by now.

It was a  mixed but mostly softer market for the grains yesterday, as rains spread across the corn belt and export sales turned fairly soft again as we hold near the $7.00 level. Corn exports were 19.1 million bushels below estimates for 21.7 to 37.4, soybeans were 13.7 vs. estimates for 20.2 vs. 31.2 and wheat at 17.4 vs. estimates for 11.0 to 18.4. Throughout the day, larger production estimates for the EU and a slight increase in Brazilian corn production had trade considering strongly the possibility of increased feed wheat usage to undercut corn demand.

We look for corn to open 7 to 9 cents lower and soybeans to open 5 to 7 lower.

Daily CME spot market prices:

Block cheese: $2.155 (unchanged)

Barrel cheese: $2.13 (unchanged)

Butter: $2.095 (up 1.5 cent)  

Grade A NFDM: $1.525 (unchanged)     

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