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

The bombs are falling on the outside markets. The equities are under assault. Food prices in general have been under sell side pressure. And amidst all the action, the dairy complex as a whole has quieted down. In fact, we have not seen a day with as little Class III futures volume as we had yesterday since Aug. 30, 2011. But we caution you to remember that nothing is still something. The longer stagnation occurs, the sometimes greater the velocity of the following move.  For now, we are in the midst of the quiet with price changes so small in Class III, Class IV and Cash Settled Cheese futures, and volumes so small (this week), they are hardly worth writing much about. The message is watch out for what’s about to hit around the corner because it will almost certainly be significant ― whether up or down.

While we appear to have plenty of cheese available, demand does seem to catch a bit of a tailwind down below the $1.50 mark. We don’t expect that buying interest to go away today, especially with arbitrage opportunities aplenty. Sellers, however, have been more aggressive trying to manage inventories using the spot market. And, if they keep at their current pace, prices may slip into the low-$1.40’s sooner rather than later.   

In the grain complex, an unsupportive USDA report in the morning which noted that bullish excitement over corn stocks were unsupported ― pegging the 2011/12 corn ending stocks about 10 percent above average estimates ― coupled with weak outside markets, allowed for corn to fall and drag beans with them. Long beans and short corn, short Sept. corn and long Dec. both seem to be viable prospects here. Look to navigate weakening prices here as the stage is set for at least a corrective pullback on prices, though bean fundamentals may put up a fight. 

This morning, we look for corn to open 2 to 4 cents higher and for beans to open 1 to 2 lower.

Daily CME spot market prices:

Block cheese: $1.4875 (unchanged)

Barrel cheese $1.46 (unchanged)

Butter: $1.425 (down 0.5 cent)  

Grade A NFDM: $1.2675 (unchanged)

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