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

Class III futures were mixed on Wednesday, though only the July12 contract posted a loss, falling just one cent. All remaining 2012 and all of the 2013 contracts pushed higher on the day, with gains ranging between 9 and 39 cents on a total of 1,198 trades. 

The move higher was aided somewhat by the wild trading day in the grain markets, which ultimately pushed lower on the day after substantial rallies, providing some relief to producers. Continued high temperatures across much of the country will keep up the downward pressure on total milk production levels supporting the market bulls’ case and pushing prices higher, a trend that has remained intact since early May.        

Yesterday, the U.S. Department of Agriculture reduced estimates for corn and soybean yields. For corn, the yield estimate was reduced by 20 bushels per acre.

Results: good numbers for bulls on the surface ― cuts in corn and bean yields and wheat carryout drive grains to 15-30 cents higher across the board.

That summed up initial reaction to the report, and the question then became, was this already priced into the market? Many traders seemed to think so and started realizing gains slowly, turning it into a major slide only a couple hours after the release of the report. This sell-off came hard and pushed grains down hard ― corn down 25 at one point and front month beans down almost 40 cents. We saw December corn at $7.04 even after a wild day, only down 13 ½ cents. As for the beans, many are still bullish ― more so than corn because there is more damage yet to come if it stays dry (more susceptibility). But it was obvious many were taking profits during the slide. The jump into the close showed that many still think there is significant room to the upside. We saw November beans settle at $15.22 ½, down 16 cents. 

Weather continues to be a concern, so back to the weatherman we go. We might very well fill the December corn gap on the charts and head up from there, so be very careful here either way. If you buy corn, then buy a put underneath!

We look for the grains to open mixed on some profit-taking.

Daily CME spot market prices:

Block cheese: $1.645 (up 0.5 cent)

Barrel cheese $1.64 (down 1 cent)

Butter: $1.54 (unchanged)  

Grade A NFDM: $1.2425 (up 0.5 cent)

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