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

It’s a time of records: the longest streak of consecutive days with spot cheese above two dollars (45 sessions) and a record milk price in July at $21.39/cwt.

Thursday evening saw prices decisively lower. But what started lower worked its way higher with commercial buying the likely suspect. Unchanged blocks and higher barrels didn’t motivate farmers or specs to sell late last week amidst a Dow which mimicked the same pattern and corn too; commodities seemed willing but not wanting to fall hard. That is the difference from 2009 — it feels like we have buyers, value buyers under the current market prices as was evidenced by last GDT auction, for example.

On Thursday’s price decline, Open Interest increased drastically, indicating that new selling is becoming a feature in Class III lately. With prices higher Friday, Open Interest barely nudged up over 100 contracts and most of the OI gain was in 2012; it seems clear that commercial buying in 2012 while long liquidation in the nearby months is balancing it out — some specs see the end to the rally short-term.  

Despite the strength in Friday’s close heading into the weekend, the week’s action produced week-over-week declines on each month and the 2011 packs. In many contracts, it was the first weekly price decline since mid-July, and if that’s not a sign of a trend change when coupled with the OI factors we are not sure what else is. The extreme weather concerns have subdued, and now we wonder what the next milk production report will look like, suspecting that if it’s not terrible the market could take an even more bearish turn. With outside markets under heavy fire, the justification of higher milk because of higher production costs could change rapidly. 

In the grains, last week was a volatile week scattered with private estimates on eventual corn and bean yield. In the early part of the week, private estimates were mostly in the range of a final yield on corn from 155 to 151. But late in the week, Informa estimates pegged USDA’s August report to come in at 158 — well above any other ‘final’ guesses. Surprisingly, Informa will usually include their own private estimate of final yield if it differs greatly from what they expect from USDA, but they neglected to do so this time around.

With cooler weather being projected for much of August, and the Informa estimate well above others, we didn’t expect corn to finish last week at just above $7.00/bu. Soybeans remained softer with the cooler forecasts for early August, their pollination period and yield estimates mostly in line with last year from 42 to 43.5. November beans closed at 1336 down 9.25 on Friday.  

This week, the focus will remain on the weather and crop condition ratings early in the week with crop condition released this afternoon at 3 pm central time. By mid-week, focus will shift toward Thursday morning’s USDA report.

 We look for corn to open 10 to 14 cents lower and soybeans to open 15 to 20 lower. 

 Daily CME spot market prices:

Block cheese: $2.1325 (unchanged)

Barrel cheese: $2.135 (up 0.5 cent)

Butter: $2.1025 (unchanged)  

Grade A NFDM: $1.51 (unchanged)     

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