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

U.S. milk and cheese markets were a largely quiet yesterday, as only about 500 Class III contracts had exchanged hands by the 1:10 CDT settlement. It was in the afternoon session when buyers pushed the September to January contracts up 25 to 50+ cents, catching market participants off guard and adding another 300 or so contracts to the daily trading volume. Open Interest rose in those months, suggesting the late-day bout of buying was new positions. Overnight strength followed in these months. 

Is this the beginning of the ascent to $20 or is this the end of what has amounted to a 10 to 15 percent increase in Class III prices in just a month’s time? Given the larger supply/demand fundamentals, the fact that such buying was relegated to Class III only and the quickness with which such buying occurred, it is likely more of a final push before some period of downward price correction. Perhaps it will serve as a beacon for a building bull market, but for now we expect this rally to fade amid cooling temperatures in the Midwest and a general lack of bullish news that hasn’t already been accounted for.

Recent export data showed that April was a near record for U.S. cheese exports, which is likely priced into the market at this time. Though we don’t export blocks traded at the CME, block cheese seems reasonably tight, at least in comparison to the ease of access to plentiful barrels in the marketplace. But spot cheese was quiet yesterday. One could discern this from a quick glance at the CME spot market, and it’s still very large block/barrel spread which historically “should” be 3-5 cents. European cheese prices are flat to soft, and we are losing price competitiveness with that and the recent U.S. dollar strength .

Grains ultimately failed in a bullish bid yesterday. Outside markets started out supportive to a bull move and faded as the day went on. Temps are cooling and there are signs of precipitation in the near future. Worries can only get things up so far, it will ultimately take some real damage to get things above resistance.  

We look for corn to open 1 to 5 cents lower and for beans to open 4 to 6 higher.

Daily CME spot market prices:

Block cheese: $1.615 (unchanged)

Barrel cheese $1.5225 (unchanged)

Butter: $1.42 (up 0.25 cent)  

Grade A NFDM: $1.21 (unchanged)

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