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

Class III futures pushed largely higher again Thursday on more than 1,000 contracts of trading volume. The path of least resistance on futures, provided in part by short-term technical strength as well as a lack of spot pressure, has been to the upside this week. Also interesting to note is that this afternoon we will receive the milk production numbers for April. So far this year, we’ve rallied futures into nearly every single milk production report and then subsequently sold off after ample production is reported. This time, we don’t expect anything different.

But the bounce this week is also inspired by anecdotal talk of ever-so-slight milk production declines here in May. We’ve heard farm reports of marginally lower milk-per-cow output in places like California, while some upper Midwest plants are telling us that multiple-dollar discounts are easing a bit. Additionally, sources tell us that fresh cheese is clearing at a slightly better rate than just a few short weeks ago. Although we don’t hear anything about buyers being worried about the availability of milk or fresh cheese, it is worth noting that supply/demand are perhaps moving towards equilibrium.

The grain markets have done a good job of fading the outside markets this week in favor of paying attention to their own situations instead. For one, the market ran out of steam technically to the downside Monday or Tuesday. Then we get news of a big shipment to China (mostly new crop) and we start thinking about weather premium. These thoughts collided within a 48 hour period and prices rallied. 

For corn, we are now chopping around the 20-day moving average. This is a good indicator of trader confusion actually. Once we break away clearly from the 20-day moving average, we ought to have a better idea of at least a short to medium term direction of the market. In the meantime, we are left to wonder things like: we will run into weather problems and how stubborn will the last owners of grain be this summer?  Questions don’t push prices higher – but they can keep prices from falling. So look for a sideways trade for now.

We look for corn to open 1 to 2 cents lower and soybeans to open 1 to 3 lower.

Daily CME spot market prices:

Block cheese: $1.50 (unchanged)

Barrel cheese $1.46 (unchanged)

Butter: $1.355 (unchanged)  

Grade A NFDM: $1.125 (up 0.25 cent)

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