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

Class III trading was fairly active for leading into the spot market Sunday night and Monday morning with around 400 trades having taken place and prices mostly 5 to 20 higher leading into the spot session, but then turned markedly… quiet. Spot prices saw a modest decline of 1.5 cents in the barrel on 4 trades and no activity in the block. As is often the case during this last week before the Labor Day holiday, the market got very quiet following the spot session. We finished the day shy of 700 total trades despite the strong activity early. August through January 2012 managed to close out stronger from +1 to +9, but 2012 prices were mixed from there forward -3 to +3.

Cheese futures traded 5 times during yesterday’s session — all the trading coming in October, which was up 0.005 on the day. Nov. and Dec. traded higher on the day as well, gaining 0.008 and 0.007, respectively, while all other contracts were unchanged as activity was very light. 

Corn: Following Pro Farmer Friday afternoon announcing a national yield estimate at 147.9 bu/acre on corn and 41.8 bu/acre on soybeans, the markets were off and running during the Sunday night session. And, during the trading day, Morgan Stanley joined the crowd which seems to be increasingly predicting a sub 150 yield coming out at 149.5. After early across-the-board strength, soybeans took the lead late and closed very near their highs on continued dry weather concerns and poor crop condition ratings. The market is becoming very concerned that not only will we need demand rationing in corn, but will also need to ration soybean demand, as well, if rains don’t come by the end of this week to stabilize conditions.

After the close-crop condition ratings came in at 54% Good to Excellent on corn down 3% from last week and well below trade expectations for a 1% decline.  Soybeans were down 2% at 57% vs. trade expectations for a 1% decline there as well. Both of these estimates were bullish, but surprisingly the grains responded when the overnight session opened with corn mixed early but down 4 to 5 by last night; beans much the same — mixed early and down 4 to 6 late night and wheat was seemingly pulling the other grains down lower by 8 to 12 cents. A strengthening dollar and rains being forecast for winter wheat areas was the reason given for the price break. But be wary of a market that can’t rise on bullish news, which these crop rating appear to be. 

We look for corn to open 8 to 10 cents lower and for soybeans to open 5 to 8 lower.

Daily CME spot market prices:

Block cheese: $1.79 (unchanged)

Barrel cheese: $1.7075 (down 1.5 cent)

Butter: $2.0925 (unchanged)  

Grade A NFDM: $1.51 (unchanged)

These data and comments are provided for information purposes only and are not intended to be used for specific trading strategies. Commodity trading is risky and FCStone Group, Inc., International Assets Holding Corporation, and their affiliates assume no liability for the use of any information contained herein. Although all information is believed to be reliable, we cannot guarantee its accuracy and completeness. Past financial results are not necessarily indicative of future performance. Any examples given are strictly hypothetical and no representation is being made that any person will or is likely to achieve profits or losses similar to those examples. References to and discussions of exchange traded products are made solely on behalf of FCStone, LLC. References to and discussions of OTC products are made solely on behalf of INTL Hanley, LLC, and OTC products are only available to eligible counterparties.