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

Class III prices failed to continue recent upward momentum because spot cheese prices failed to move up, and currently the futures have already priced in significant premiums to underlying spot prices ― to move up more on futures, spot has to move up, simple as that.

Producers are focused on the cost of production, the potential decrease to supply from on farm losses and the loss due to weather.

How long will on farm losses take to equal farm closures and cow losses? We have already seen an uptick in farm sales and auctions (of size), but most of those cows are sticking around for now. We are cautiously bullish, but more bullish into 2013. The $1.70’s on cheese will be a good near-term test for domestic cheese demand.

In the grain complex, you might like the recent price declines or not, but the trade action has been fascinating either way ― up, down and all around in a very short period of time.

So what has changed? This was the first Monday in about six weeks where the talk centered on where the rains hit, how much there was, was it enough, why it wasn’t enough… opposed to the past six Mondays which centered around there being no rain. Add to that change in weather talk the outside market pressures brought on by Europe, and you had the perfect mixture for profit talking ― every bull has to breathe; weak and late longs are often punished by the market.

Beans plummeted, having traded limit lower yesterday, but managed to close above that. Strong export booking supported corn a bit more than beans early yesterday morning, but really its rain. Rain now could still make a significant difference in the bean crop, whereas most of the corn crop is already done for.

After the market closed yesterday we got weekly crop condition reports and they were, for the first time in several weeks, on the more bearish end of expectations. Expectations were for both corn and beans to decline 5-7 percent.

Daily CME spot market prices:

Block cheese: $1.7175 (unchanged)

Barrel cheese $1.695 (unchanged)

Butter: $1.61 (up 2 cents)  

Grade A NFDM: $1.3675 (up 0.75 cent)

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