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

Class III futures tumbled Tuesday on falling Global Dairy Trade (GDT) prices reported shortly after the opening bell, putting pressure on futures across the board. 

Cheddar cheese prices and volumes led the declines, finishing down 15.0 percent for Contract 2 amounting to an “all contract” average price of $1.3322 per pound. Overall, GDT product prices slumped by a staggering 9.9 percent, the largest decline since July 2010, amid generally heavier volumes. Once these bearish winds blew through Chicago, selling interest spiked and prices fell even into the first quarter of 2013.  In all, the GDT TWI has now fallen to its lowest level since September 2009.

On a brighter note, the lesson learned again today is that the U.S. is still a predominately domestic market. Although GDT echoed the grim sentiment held by many analysts and other member of the dairy industry, the spot cheese market was actually stable Tuesday. As 10 loads of barrels traded hands at $1.46 ― unchanged on the day ― the price of block cheese remarkably edged higher by .25 cents.  In fact, it was likely the spot market that held futures selling at bay resulting in more modest declines of .01 to .25 cents lower by the end of the day.

With GDT down and buyers still ready, willing and able in Chicago, what gives? Two possible explanations are that either our market is still at what is most aptly described as an interim level of equilibrium. Or there is more disconnect between the U.S and global dairy markets than we understand.  Perhaps a bit of both.  From a domestic supply/demand standpoint, however, we expect that the U.S. prices will ultimately converge with the world at lower price levels over the next 30 days. We might not have to trade in step with other nations, but we will likely mirror them.

The grain complex got a reprieve from aggressive selling Tuesday as prices largely traded slightly higher ahead of a delayed Weekly Crop Progress Report normally slated for a Monday afternoon release. Traders got what they were looking for as the USDA reported that 17 percent of the U.S. corn crop has been planted as of April 15, surmounting the previous five-year average by more than 10 percentage points. We’ll have one-third of the crop planted ― if not more ― by May Day. And speaking of Mayday, corn market bulls may be screaming that before too long.

Soybean futures have maintained their upward trajectory well into April, but may lose their bullish footing amid corn and wheat price weakness. Fundamentally, any weakness in the soy market is likely more of a market correction than a long-term directional shift at this time. In fact, on Monday the China National Grain and Oils Information Center estimated that the country’s April soybean imports would reach 4.63 million tons, down from 4.83 million tons in March but well above 3.88 million tons last April. They also said that actual imports could wind up higher than the forecast, after the Commerce Ministry had estimated soy imports at 5.63 million tons earlier this month. Of course, they didn’t say they were buying it all here.

We look for corn to open mixed and for soybeans to open 8 to 11 lower.

Daily CME spot market prices:

Block cheese: $1.49 (up 0.25 cent)

Barrel cheese $1.46 (unchanged)

Butter: $1.425 (unchanged)  

Grade A NFDM: $1.1775 (unchanged)

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