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

Class III futures opened yesterday by responding to the late day pop seen Monday afternoon, trading higher led by deferred contracts in the fourth quarter. But overall volume was light, especially in the deferred contracts, and gains moderated into the spot session with July and August trading lower just before spot.

The spot session, which seemed even more highly anticipated, if that is possible, opened with a bid in the barrels and every effort was made to push the block/barrel spread back into line. But, as the barrels increased, so did the blocks. By the close, barrels had made up a little ground, gaining 4.25 cents to 1.5650 on one trade and a remaining bid, while the blocks increased by 3.5 cents to 1.6500 ― the third time we’ve stopped at $1.65 this month ― with no trades and a lone bid remaining. Futures would be expected to rally sharply as the spot market was moving higher, but by shortly after the close futures prices were only 5 to 15 higher ― likely due to the fact that futures are trading at a relatively steep premium to spot already. Front month July, for example, is pricing a $1.6675 cheese price ― we closed with an average closer to $1.60 yesterday.

Open interest continues to increase on higher priced days as well with a gain of 174 contracts yesterday. We do, however, have to reiterate what we hear from the physical marketplace that while block cheese demand is good, cheese is available ― especially barrels ― but those with product are shying away from bringing it to the exchange for fear of widening out the spread even more, as blocks are tight. That could change, but buyers still seem to have a thirst for product which needs quenching before this run can cool. Longs need to beware the NDPSR in the coming weeks to ensure that physically reported prices are in fact keeping up with the spot market trading price. We look for futures to continue to move to the upside today, but strongly encourage producers to target profitable sales levels as this market can turn lower as quickly as it has run up.

Following the USDA reports yesterday, the grain market will now turn its attention toward the June 30th planting report and the chance that acreage changes will move the production numbers, greatly affecting the supply and demand for next year. In addition to the new crop acreage changes, there will also be an equal anticipation for the corn and soybean stock numbers as basis levels indicate that stocks are extremely tight, perhaps even tighter than USDA is projecting.

That always pesky weather will continue to be a driver, as well, and we still favor having 25 to 40 percent of corn needs protected below the 5.25 mark due to the heightened weather risk.

We look for corn to open mixed and for beans to open firm.

Daily CME spot market prices:

Block cheese: $1.65 (up 3.5 cents)

Barrel cheese $1.565 (up 4.25 cents)

Butter: $1.4325 (up 1.25 cent)  

Grade A NFDM: $1.215 (up 0.5 cent)

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