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

It was an interesting Class III session yesterday as prices traded mixed but mostly higher throughout the day after strong overnight gains were seen in the fourth quarter. Futures turned lower in a number of nearby months when the spot session saw blocks close ¼ of a cent lower. But when butter bounced back, Class III buyers seemed to have more comfort trying to continue the recent trend. On the day, volume was strong, clearing the 1k mark and open interest saw a very large jump of 428 contracts, but prices closed more neutral than decisively higher or lower.  The milk production report is priced in.

Class III seems hesitant to break, while the Class IV markets look to play catch-up for the time being. The slight drop in Global Dairy Trade after the big gains, however, may be an indication of what will play out for the U.S. market as well. The recent rally has come quickly, and been sizeable, but we are starting to see signs that the spot market has topped in cheese. Sellers have returned to the spot butter market and offers have been left on the board for NFDM. This not to say that the market can’t continue to run ― technically the market is still very well supported ― but Class III and cheese futures markets are running out of upside momentum. 

The story on grains remained more of the same on Tuesday as hot dry weather across the corn belt and in the forecasts for the next week continued to push the market sharply higher. July corn settled up 13 cents at 612.5, December up 29.5 at 563.5, while soybeans led the rally up 49.5 in July at 1433.75 and up 45.25 in November at 1384.5. 

We look for corn to open 2 to 5 cents lower and for beans to open 8 to 15 higher.   

Daily CME spot market prices:

Block cheese: $1.6125 (down 0.25 cent)

Barrel cheese $1.5725 (unchanged)

Butter: $1.545 (up 2.25 cents)  

Grade A NFDM: $1.2225 (unchanged)

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