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

A more active morning session saw prices trade mostly higher into the spot session which was the highlight of the day. Blocks traded 11 times and barrels four times, with blocks unchanged and barrels down ½-cent. Futures rallied sharply as the bids came into both markets but what we found most supportive was the seven bids remaining in the block by multiple bidders and just a single seller on the day. Futures which were carrying a premium already to the spot market felt comfortable adding to that premium in spite of prices not moving. It seems inevitable with class IV prices as strong as they are that cheese may ultimately rally to close the spread. But it appears that yesterday’s bounce was inspired more by short-term technical strength than anything else. 

Commercial disappearance numbers were strong for dairy products in February. American cheese disappearance was 12.1 percent higher than February 2010 — the last double digit gain was back in November 2010. Butter disappearance had a strong showing too at 19.6 percent above year-ago levels. Not since September of 2010 have we seen a double digit gain in butter disappearance. 

The issue here, however, is that these numbers do more to validate the tempo of product consumption 60 days ago and not what is going on today. However, the growth is good to see and while demand has cooled some of late, we cannot necessarily write off the possibility of another demand spike as we saw in February sometime later this year.   

A big volume day from class IV yesterday as a total of 139 trades occurred. Sell interest is heavy now with prices mostly over $20. Producer interest seems to be growing in class IV as they are looking for more effective hedge strategies to provide a higher correlation to their milk check. Prices were mostly unchanged and settled mixed with July and Aug up 5, Oct down 3 and November up 16.

We look for a steady to higher open.

Grains traded a choppy sideways session throughout yesterday. Commodities in general were soft as China will likely continue to battle inflationary pressures there and soft export demand from Asia is applying pressure on soybeans. Wheat attempted to rally based on weather but ultimately finished lower as well. Only old crop corn was able to push higher on the day as fear is increasing that early season harvest supplies will be short given the slow planting pace in southern states. July corn settled up 4.25 at 772.75, new crop corn was down 5.75 at 675.75, beans were down around 7 cents across the board and wheat finished down 14.75 in Chicago at 811.25.

Unpredictable weather, heavy spread trading, extremely volatility and high prices have led to a very choppy market and that has made the day-to-day movements nearly impossible to determine. Ultimately tight fundamentals should continue to support this market until we see some demand deterioration that wasn’t found in the March stocks report. Our feeling is upside remains the biggest risk into any upcoming reports but if we are simply trading weather as we noted yesterday a big move in either direction is possible.

CME group also opened a few eyes as they put out a news release stating that they are considering expanding limits in corn from 30 cents to 50 cents. From a standpoint of wheat limits being 60 cents and corn pricing nearly as high as wheat a larger corn limit does make sense, though it is amazing to consider that not long ago a market that would move less than 3 cents a day would see half a dollar daily limits.

We look for corn to open 4 to 6 lower, beans to open 8 to 11 lower, meal to open 2 to 3 lower, and wheat to open 8 to 12 lower

Daily CME spot market prices:

Block Cheese $1.6000 (no change)

Barrel Cheese $1.5750 (down 1/2)

Butter $2.0025 (no change)

Grade A NFDM: $1.6100 (no change)

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Source:  FCStone/Downes-O'Neill