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

We’ve already put on our rally caps and we are keeping them on! Good futures volume over 1k contracts traded yesterday as prices rallied. But, wow, look at the options activity. With over 3k total options total traded and over 1,700 calls, it has to get your attention. Lots of Min/Max (collars) strategies being executed with calls being bought as end-users and specs alike look to get long, but want to leave some room to the downside in case a seller pops into this spot market and stops the bid in its tracks. Look for continuation to the upside as whey appears supported, and grains are on a tear upward that some believe could lead to the biggest bull grain market ever ― we’ve been saying buy calls on corn for a month, we hope you did but if not go get them soon.

Grain futures

How to perform a rain dance: http://www.ehow.com/how_5519447_perform-raindance.html

Unrealized secret: the rain dance always works because it is done until it rains regardless of how long it takes.

In the weather market of 2010, prices rallied 71 percent starting from June. And, if we repeated that, we could see prices reach $8.67/bushel. Not saying that will happen, but accentuating why we’ve been saying for a month to buy calls. We think now, as we thought in 2010, that we would wind up with ample crop (we did in 2010 also). But the weather scares can mean that end-users pay through the nose before the supply is proven and prices corrected. Be concerned, as the heat wave is prepared to reach 100 degrees with little to no rain just as we are tasseling (making the crop).

We look for corn to open 8 to 12 cents higher and for beans to open 10 to 12 higher.

Daily CME spot market prices:

Block cheese: $1.6525 (up 1.25 cents)

Barrel cheese $1.675 (up 1.5 cents)

Butter: $1.52 (unchanged)  

Grade A NFDM: $1.2275 (unchanged)

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