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

 When you don’t trade 450 futures contracts it’s often a sign there isn’t that much to talk about. We have had some major volatility of late, and usually there is a cooling-off period after tectonic plates shift. We are in the midst of that cooling period. Many times, the calm is broken by another violent eruption, and that is what we are likely bordering on right now. So be on guard!

The market appears both technically and fundamentally as though it wants to bounce. Buyer nibbles on cheese are present and futures are inching higher. Technically, the September contract in particular ought to bounce a little more here before finding a hard-line area of resistance and then selling off once again. 

2012 contracts also have some potential rally left in them from current levels as commercial buy interest continues to underpin. It’s the corn market — not the price of Class III milk — that is keeping producer selling at bay. 

Cheese futures traded just 6 times yesterday. And with talk of milk dumping in the Northeast resulting from Hurricane Irene, there is some support for milk/cheese prices. But, all in all, this is a slow time of year following some abrupt price changes and the dust is simply settling, but that seldom lasts for long. On a side note, OTC cheese activity picked up recently and we have seen volume getting done there.

Tuesday was impressive for grain bulls. The day started with panic and pressure, but by the end higher prices won the day. There was much talk of a turn-around Tuesday but it was not meant to be anything but another buying opportunity.

This is the 8th driest August for Illinois in 117 years. Buyers are on full alert as outside market influences are supportive overall and the technical strength points to follow-through of this recent grain/bean strength.   

But it’s the sellers — the crop farmers — who need to be getting their house in order. Grain markets are quick to ration the potential of tight supplies. Historically, this will occur long before we reach the time of year when the supplies are “literally” tight. Prices are already moving higher to slow demand for a crop that is not yet harvested and that will not become physically tight for nearly a year.  Selling more than normal — further out than normal — at harvest may be a very good strategy this year.

We look for corn to open 4 to 6 cents lower and for soybeans to open 4 to 6 lower.

Daily CME spot market prices:

Block cheese: $1.79 (unchanged)

Barrel cheese: $1.705 (down 0.25 cent)

Butter: $2.09 (down 0.25 cent)  

Grade A NFDM: $1.51 (unchanged)

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