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

What started out strong last Monday left the Class III futures market to finish out a shortened, pre-Easter week with a third day of futures losses. A compilation of technical deterioration, combined with a lack of spot cheese market buy interest and price weakness in both butter and dry whey futures, to keep a forceful amount of both speculative and inventory hedge sell interest through the closing bell Thursday. 

To add fuel to the bearish fire started earlier in the week, spot cheese sellers returned Thursday to offer both blocks and barrels down a 0.25 cent.  Is the market at equilibrium or is this the chink in the armor before more spot cheese price weakness?  While we don’t hear of a tremendous amount of fresh cheese available at current and, while we remain on guard to see if the same type of demand we saw a month ago returns, we expect that the path could easily be lower for spot cheese and Class III futures in the coming days. For now, the April to June Class III pack still runs a premium to spot cheese, though it fell .35 cents last week to finish at $15.39.

Cheese futures also moved lower Friday, though this is a market that also carries a sizable premium to spot market pricing. Between cheese and Class III futures, it appears as though there is still healthy buy interest especially in the July to December timeframe at prices between $1.67 and $1.70.  The question for the second half of these markets is: When will we work our way below $1.65?  It is hard to know the answers, but expect that any additional bearish news thrown at the market may exacerbate the price spreads between the second quarter and the second half futures prices.

Grains ended the week on a slightly higher note last Thursday, led by soybeans which closed up 14.5 cents in May at 1434.0 and 6 cents higher in November at 1381.5. Corn tagged along, interestingly, with December closing up 6 cents at 550.25 stronger than the old crop May corn which was up just 1.5 cents at 658.25. Strong export sales supported the rally with 44.2 million bushels of corn sold vs. estimates for 15.7 to 31.5 and soybean sales at 40.9 million bushels vs. estimates for 20.9 to 36.7.

With the shocking stocks and planting intentions in the rear-view, grains were mixed on the week as corn (+14.25 cents) and soybeans (+31 cents) gained, while wheat prices fell (-22.25 cents). One is left with little choice but to be bullish of corn and beans in the short term with prices continuing to move higher and threats of frost for the coming week.

This morning, we look for corn to open slightly higher and for beans to open mixed.

Daily CME spot market prices:

Block cheese: $1.4875 (down 0.25 cent)

Barrel cheese $1.46 (down 0.25 cent)

Butter: $1.43 (down 0.75 cent)  

Grade A NFDM: $1.2675 (unchanged)

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