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

The USDA’s Cold Storage report Thursday was neutral for butter, but bullish for American cheese.  Not since 2004 have we seen American cheese inventories drop in the month of March when storage fell by 2.2 percent — and we all remember what happened that year. But before we look at this rare occurrence of moving cheese out of warehouses in the month of March as predicting another 2004, the USDA also showed a decline of 1.5 percent in American cheese inventories in March of 2003.  In other words, this report may be a sheep in wolf’s clothing for market bulls. 

Class III milk prices gave back only a little value last week in spite of declining cheese prices. On the shortened trading week, block prices fell to $1.60 from $1.6275 the previous Friday. In the same time period, barrels fell from $1.6250 to $1.58. However, despite those cheese declines, milk didn’t go convincingly in the same direction. Class III April-June pack closed last Thursday at $16.65 vs. $16.98 the previous Friday. The July-Dec pack closed at $17.41 vs. $17.47 the previous week; the slight of a decline is indicative of the pervasive bullishness out there for the longer-term period. Short term, we still look for some more barrel price decay.

In the grains, it was a relatively quiet session on Thursday as grains looked like they would follow through on Thursday’s sharp selloff early following lackluster export sales. Prices, however, remained resilient throughout the session and ultimately caught some buying late to close higher. Corn was up 4.5 cents in May to 737.25 as May options expired Thursday, New crop was 10 higher with strong rains forecast through the end of April settling at 665.5. Soybeans were up 22.75 in May to 1380.5, while new crop beans were up 16.5 to 1382.25.

This market seems to now be mostly trading planting weather in the absence of any fresh demand data. This type of market is usually extremely volatile and, with prices as high as they currently are, expect the swings to be enormous. For now, the forecasts are wet into early May for most of the Midwest, and as long as that remains the case we’d expect higher prices.

The long weekend saw much of the corn belt get rains. But not enough rains for the hurting winter wheat crop in the southwest, and that led to a sharply higher open with corn and wheat up some 18 cents in late-evening trading and soybeans just along for the ride up just 3.5.

We look for corn to open 15 to 18 cents higher and beans to open 3 to 5 higher.

Daily CME spot market prices:  

Block cheese:  $1.60  (no change) 

Barrel cheese:  $1.58 (down 0.25 cents) 

Butter:  $2.00  (no change) 

Grade A NFDM:  $1.61 (down 0.25 cents) 

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Source:  FCStone/Downes-O'Neill