Class III traded mixed Tuesday as traders try to reconcile a soaring corn market and a falling cheese market. There is a bias to want to be bullish on Class III here lately, as $1.60 seems “cheap” relative to where we’ve been so far this year. Relative is the key word there as today Chicagoans are walking to work in windbreakers and sweaters because the 50 degrees is “warm” relative to the 20 degrees of last month.  Nevertheless, Class III commercial and speculative buying remains prevalent.

CME spot cheese reached another “budget buying level.” Double-digit trades in both the block and the barrel seem supportive, but can’t necessarily be taken as a solid floor. The medium- to long-term bias remains slightly bullish, but short-term we continue to hear that cheese is available, and a break below $1.50 should not be ruled completely out of the question.  Picking a bottom is generally a fruitless endeavor.   

Cheese futures trading activity remained soft yesterday in spite of the up-and-down nature of the Class III trade. We’ve been somewhat surprised at the lack of selling in the cash cheese contracts, given the weakness in Class III.  Prices are some 10 to 15 cents above the spot market. 

The grain markets once again finished mixed Tuesday as corn settled at 766 2/3 in May, the highest settlement prices for the spot contract in corn exceeding July 2008 highs of 765. While corn continued to climb, beans continued to soften, falling by 10.75 cents to 1373.25; soybean meal was down 3.4 on the day to 353.6, and wheat finished down 3.75 at 786.25.

Producers may want to look for dips to lock up their feed needs as the fundamental picture seems to be too tight for any dip to turn into a prolonged decline. We encourage patience as we need to see some margin opportunity against milk futures.

Friday, USDA will issue the April S & D estimates. And while we would suggest that surprises should be very unlikely coming so closely on the heels of last week’s Q1 estimated stocks, these grain reports are anything but predictable, so there is always the possibility for a surprise in either direction. 

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

CME spot market prices  

Block cheese:    $1.5775   (no change)  

Barrel cheese:   $1.5225  (down 3 cents)  

Butter:   $1.97  (no change)  

Grade A NFDM:   $1.67  (down 1 cent)  

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Source:  FCStone/Downes-O'Neill