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

Class III futures volume fell to roughly 1k in volume in a dampened, bullish session. Settlement prices ranged from unchanged to 15 cents higher throughout the 2012 contracts. The Class III contracts had surged higher after the spot session, only to drift from their intraday highs throughout the afternoon. The midsession rally was sparked by the 3.75-cent jump in the spot barrels and the 0.75-cent increase in the blocks, with both now sitting above the $1.60 level. 

The above-average temperatures experienced in much of the U.S. over the last couple weeks has helped to strengthen the case of market bulls, made evident by the June rally we’ve seen. The Class III futures look to be running out of steam, though, and a correction in prices could be just ahead.  

Hot, muggy weather has engulfed many milk-producing areas over the past few days ― specifically the Midwest. The weather has served as a fundamental support for milk around current levels and ― to a greater extent ― a significant rally in the grain complex this week.  Six- to 10-day weather maps show a little rain and a good deal of cooling for the upper Midwest, as temps are expected to moderate back into the mid-70’s. Meanwhile, the Central Valley is also looking to cool off somewhat for the next five or six days before getting back into the 90’s during the day. Milk production has been impacted to some degree by the heat, but the somewhat cooler forecast may be a welcomed reprieve. 

Yesterday we also had the release of two reports; the National Dairy Products Sales Report for the week ending June 16th, and the AMS announced Class I fluid milk base price. The July 2012 Class I base price came in at $15.51, $0.27 higher than June, but a whopping $5.52 less than the same period last year.

Corn had a fast day with the overnight trade and morning trade holding new crop in check, then a resurgence into the end of the day had almost all of the contracts around even. The December corn future settled up 3 to $5.66 ½ and made a comeback into the close. Beans are on a run to the upside and showed no signs of slowing down yesterday. 

Overnight, the grain complex traded lower giving back some of Wednesday’s gains. We’re in the midst of a weather market here. Tensions run high and prices respond in kind on daily weather charts. If rain develops in the forecasts, the grain complex is highly vulnerable to weakness. But it’s all about rain right now. 

China’s Premier is making a visit to Argentina to meet with President Kirchner later this week, with the trade and agriculture ministers of both countries meeting as well. That raises the question of grain (specifically corn) trade agreements, though nothing formal is likely to be decided. The two countries have been in talks for over a year, trying to clear sanitary and shipment issues of Argentine corn varieties to China.

We look for corn to open 4 to 7 cents lower and for beans to open 6 to 9 lower.   

Daily CME spot market prices:

Block cheese: $1.62 (up 0.75 cent)

Barrel cheese $1.61 (up 3.75 cents)

Butter: $1.545 (unchanged)  

Grade A NFDM: $1.2225 (unchanged)

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