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

Yesterday’s Global Dairy Trade (GDT) auction saw prices up almost across the board.

The GDT auction showed sharp increases in many product categories, leading to an overall increase of 13.5 percent for the event, though volumes traded were lower than one might expect.  Market bulls, for instance, would like to see volume follow price trends. Nevertheless, U.S. NFDM rose 20 percent from near $1 per pound to near $1.20. 

While GDT was up big, U.S. spot cheese markets both finished lower, but were supported by fresh bids and together spurred a rally in cheese and milk futures with Class III settling up as much as 51 cents (August).

Scratching at us is the fact that once again Open Interest decreased in the largest-gaining contracts, indicative of short covering more than new buying in the market. Spot cheese was lower, as indicated above, but buyers came in late and bought the dip, causing spot to close off its lows, and that usually incites enthusiastic buying.

School milk has thus far failed to incite pressure with participants, suggesting it was already priced in. We are in the buying-dips mentality now, but suspect that won’t last all too long. Exports remain strong. Demand, from what we hear, is not for immediate use but rather discounted buying for inventories, which if true would suggest we are pushing the bear farther down the road.

In short, the dynamic of yesterday’s rally has earmarks of being short-lived for now. But we expect more of this volatile, choppy action for a while before a new trend emerges. 

In the grain complex, beans rallied and gained ground on new crop corn based mostly on Monday’s crop ratings release. Outside markets were largely mixed Tuesday, but very bullish to grains overnight last night. NWS maps look reasonably wet most of all on the 6-10 day forecasts, but the Euro models are hotter and drier short term. It’s a bear for grains, particularly corn and wheat, but short-term bumps will be provided by weather and outside market opportunities. While we expect more strength today, it seems to us only an extended and extreme weather event will allow for a massive move upward.

We look for corn to open 5 to 7 cents higher and for beans to open 12 to 17 higher. 

Daily CME spot market prices:

Block cheese: $1.58 (down 1.25 cents)

Barrel cheese $1.5225 (down 1 cent)

Butter: $1.41 (up 1 cent)  

Grade A NFDM: $1.19 (up 0.5 cent)

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