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

Class III futures kicked off the new week with follow-through price strength inspired primarily by Friday’s dazzling display of support in the block cheese market and downright oppressive Midwest heat. It wasn’t hot enough to keep spot buyers away again today, as multiple bids carried the price of blocks to up 6.25 cents to $2.1200 where a trade occurred and the increasing bids stopped (barrels finished unchanged with 1 trade). Futures continued the parabolic panic spike from Friday pushing between .09 and .49 cents higher by the closing bell. 

A price rally of this magnitude has come quickly, on strong volume and with impressive gains in Open Interest. When volume and Open Interest are both showing solid gains, as they have over the past two days, it is generally presumed that the direction of the market is trending solidly — in this case higher. And higher we expect to go early Tuesday. But when a market spikes parabolic, adds impressive price gains — as this market has over the past two trading sessions — we conclude that it is dangerously vulnerable to a swift and impressive sell-off from being over-bought. Like a mainsail not properly trimmed in a storm, prices could easily flop both sides of unchanged here today.

Fonterra’s Global Dairy Trade results will be released later this morning. Expectations are for further price weakness on WMP and SMP. The newest addition to the auction will be the price of cheddar cheese, the results of which may provide another reason for a course correction here today. Later this afternoon, we will receive the milk production numbers for the month of June. 

This morning, we look for Class III to open mixed to firm.

Grain prices spent Monday trading mostly lower. And, weather forecasts turned slightly wetter for much of the Corn Belt as “ridge rider” storms are expect to pop up here and there over the next 4 to 5 days as the heat moves East. The trade will favor a choppy approach at these levels as participants try to figure out if the weather will turn out to be an oven or a greenhouse. But buyer beware, we are one good weather report away from a sharp decline. 

Also providing slight pressure was a stronger U.S. dollar. After a precipitous fall last week, USD support has held and may begin to provide a platform for further dollar gains. Fundamentally, deadlines are fast approaching for both European and U.S. leaders to resolve debt hurdles, which sent the Euro lower and the Dollar higher. Global growth concerns once again have watered down bullishness, in part because of a weaker-than-expected U.S. jobs report last Friday.

We look for corn to open 10 to 14 cents higher and soybeans to open 5 to 7 higher.

Daily CME spot market prices:

Block cheese: $2.12 (up 6.25 cents)

Barrel cheese: $2.11 (unchanged)

Butter: $2.03 (unchanged)  

Grade A NFDM: $1.55 (down 6 cents)     

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