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

Class III prices got pummeled Monday on heavy volume. Over 2,400 contract traded hands, as what started as a steady to slightly lower day turned quickly turned into producer panic and vigorous speculative selling. It was a multi-pronged selling event.  For starters, there was follow-through selling from Friday’s rout. Additionally, double whammies of continued pressure on spot prices as well as another day of sharp declines for the dry whey futures market. When the closing bell rang, the second quarter had traded limit down (.75/cwt) intraday, and both April and May finished there.

The interesting piece to us about Monday’s trade is that for the first time in months, the CME spot market is not the cheapest of Class III or cheese futures in Chicago. In fact, because of the decline, nearby Class III futures contracts are at parity with current spot market pricing. So, regardless of how steep the decline or bearish the sentiment, the nearby contracts of April and May are not running too high or low, but rather simply converged with spot.

Producers are largely staring at losses through the middle of the year and break-evens for the second half now (if they weren’t already). As this is the case, tread lightly with any hedging strategies. You want to have coverage this year, but not every single day is a good day to market your milk. For the second quarter, today is not one of those days.

The grain complex got off to a ho-hum start to the week amid a neutralized dollar trade and a lack of fresh bullish news to really propel a rally of any consequence. Weakness in the Euro looks to be resuming some, and that ought to provide more of a headwind to grain prices in the coming days. 

Soybeans have been straight up for some time and though closing only slightly lower yesterday, may be the market with the most weakness to come. Last Friday, Informa gave their latest updates on world crop production, reflecting a 3.4 million ton loss. South America corn production was unchanged. The smaller South American crop is well priced into the soybean market for now, and though we MAY still have some time before printing a price peak, the grain complex in general – and soybeans specifically – is poised for a sell-off.

Look for corn to open 5 to 10 cents lower and beans to open 2 to 4 lower. 

Daily CME spot market prices:

Block cheese $1.46 (down 2 cents)

Barrel cheese $1.4575 (down 2.25 cents)

Butter:  $1.45 (unchanged)  

Grade A NFDM: $1.2775 (down 1 cent)

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