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

Wednesday night, Class III prices and volume soared (again). Early Thursday morning, prices had backed off as volume picked up moderately. Prices went from as much as 30 lower to as much as 15 lower. Then came spot: blocks were up 4 cents and barrels were up 3 ½. And prices got a short-term uplift before selling came back in and we went lower across the board ― by as much as 44 cents (Sep13). Late-day buying came back in and prices turned well off their lows giving us a MIXED close with nearbys up 1 to 2 (March-May) and down 9 to 33 (June13-Dec13). 2014 was excluded from almost all of this topsy-turvyness. That’s a lot of price volatility to digest!

Yesterday morning we said hold off on outright buying. Today we say:

  •  End users - buy call spreads as a first choice. Three ways are the second choice.
  •  Processors - buy min/max’s (collars, fences). Second, sell futures/forward contracts (but please, pretty please don’t snooze on the grain side just because you are bearish the grain market (thin about last year and others)- forget what you think you know, it can be dangerous. use what you do know – your margin stats).

Buying is okay on a strong enough pullback, but we’d like to have seen a slightly bigger retracement on the closing price to motivate us more to jump in. What don’t want to do is sell nearby and buy farther out ― that trade is in the past. When we recommended a while back we felt the risk was 10-20 cents and the reward was about a buck. Now, the risk is probably 40-60 cents and the reward is 50 cents; not a good enough ratio.

Spot session results:

Block cheese: $1.68 (up 4 cents)

Barrel cheese $1.655 (up 3.5 cents)

Grade A NFDM: $1.54 (up 2 cents)

Butter: $1.70 (unchanged)

Beans took the reins yesterday as South American logistics issues and U.S. export sales took front and center. Corn ultimately fought its way back from the downside to close marginally higher ― May13 up ½ cent to $7.33 and Dec13 up 1 ½ cents to $5.68 ½. Wheat was the laggard in technical profit-taking. One of the more ho-hum trading session of late, other than the bean surge of technical supports. Overnight was moderate softness across the grain complex.

Friday morning, we look for grains to open soft. 

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