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

Class III futures closed out the week with mixed settlement prices on just 649 trades. Prices settled from 2 cents lower to 15 cents higher. The past week of trading was quite volatile, with prices rallying hard the first couple days only to give those gains and more back on Thursday and Friday. The third quarter pack settled Friday up 7 cents to $16.54, but down 12 cents from the Friday prior, and down 40 cents from Tuesday’s settlement of $16.94. 

While Friday’s spot session narrowed the gap between blocks and barrels to just 4.25 cents, closer to the historical norm for the spread and helped add to the overall weakness of the Class III.  Some of the losses could be attributed to the negative fundamental outlook for Class III provided by the WASDE report earlier last week. If you missed it, the WASDE report released on June 12 posted expectations for 2012 milk production to come in at 202.2 billion pounds ― up 300 million over last month’s projections ― which would constitute a 3.1 percent increase over 2011. The increase in milk production projections is based on the slower decline in cow numbers thus far this year. The Class III futures should see continued selling pressure to start the week, though increasing temperatures across the nation could help the fundamental setup for the market.

Cheese futures managed on 29 total trades on Friday as only two contract months posted a change in price. The July contract contained 28 of the 29 trades, losing $0.008 to $1.6100. The August contract managed to settle $0.001 higher to $1.648 on an uncovered bid, while the September contract posted the only other trade while remaining unchanged. The cheese futures should continue to track closely with the price action in the Class III market, with expectations for further price weakness to start the week.        

The much awaited Greek elections came and went yesterday leaving the Eurozone intact ― for now. The New-Democracy Party won by thin margin, but enough to proceed with the bailout and subsequent austerity measures. Global markets had a lackluster response to this, but it is just one step that has been taken and unfortunately markets are a bit gun-shy. Plus, this election may serve to shift focus on to another of Europe’s ailing countries: Spain. 

As for our markets ― in particular grains ― the news out of Europe is not necessarily bullish, just not the deflationary proposition that may have come our way if the bailout party had lost. 

So, we focus on weather here. Much of the corn belt received some rains over the weekend and into today, but temperatures are running above normal in many areas again. Traders are seeing weather as somewhat supportive still. 

On the other hand, INFORMA dealt a blow to grain market bulls on Friday when they put out a forecast that called for 96.8 million corn acres vs. 96.1 million previously and USDA’s  95.9 million. Soybeans 76.0 milion vs. 75.8 previously and USDA’s 73.9 million. This changed the playing field, and we saw that as front month old crop corn sold off hard, losing 22 cents. New crop September and December sold off 11 ¼ and 10 cents, respectively. The increase in acreage over estimates by the USDA pushed the complex down, and we look to the forecasts to see what to watch in the coming weeks. Beans were following the same trend, with increases in acreage, losing 10 cents in July and down in August and September, but added anywhere between 3 and 5 cents past that. Long-term concerns seem to prevail anywhere past the September futures in the bean trade.

We look for corn to open 2 to 10 cents higher (new crop up more than old) and for beans to open 10 to 14 higher.  

Daily CME spot market prices:

Block cheese: $1.615 (down 3 cents)

Barrel cheese $1.5725 (unchanged)

Butter: $1.54 (up 8.5 cents)  

Grade A NFDM: $1.2225 (unchanged)

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