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

The charts look like they might be forming a bottom. The rally, however, looks like a lot of short covering in Class III and cheese futures. Nearby months (really only June) are moving aggressively. All others are stagnant or appear to be dragged along kicking and screaming, like a child who has gone “boneless,” not wanting to walk, but is being dragged along by a parent. Fifty-nine percent of yesterday’s Class III volume was in June, but Open Interest only moved up 36 contracts.

We don’t see this really as “‘sustainable” for now, and neither do the futures based on the action described above. Milk is still abundant, global prices are still under pressure, and schools let out soon. Although we expect price pressure in the coming days as futures consolidate… we don’t expect new lows to be made at this time.

In the grain complex, USDA said private exporters had reported sales of 900,000 metric tons of corn to China, including 180,000 metric tons for 2011-12 and 720,000 metric tons for 2012-13. Most of that volume was revised from previously reported unknown destinations, but 240,000 metric tons were new sales. Increased ethanol production added support. And, on that news, the grains bounced upward again. It is a rally we feel to be sold, but $6.00 July corn and $5.00 Dec corn are going to be tough levels to break and remain below. End-users should be buying some calls on pressured price days.

A rain system is expected to move through the Midwest during the weekend, and another is on the way for later next week. Neither of these systems is likely to be a widespread soaker, with over half the crop areas likely to miss rains. Temperatures are expected to be 10 degrees above normal. Traders are concerned that next week the top soil readings will be a bit drier than this week, with the greatest concerns in the Southwest followed by the Delta.

We look for corn to open 1 to 2 cents lower and soybeans to open 6 to 8 higher.

Daily CME spot market prices:

Block cheese: $1.50 (unchanged)

Barrel cheese $1.46 (up 1 cent)

Butter: $1.355 (up 0.25 cent)  

Grade A NFDM: $1.1225 (unchanged)

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