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

The month of May closed with a bit of a whimper for Class III, though not by trading volume standards. Class III futures eclipsed the 1,000-contract mark for the first time this shortened holiday week on Thursday. It was a choppy two-sided affair, resulting in the leveling-out of the forward curve. 

Initially, a mix of what appeared to be both short-covering and commercial buy interest lifted Class III prices. Dry whey too was edging higher. The intra-day trading highs, however, were put in just prior to the spot session as nearby futures relaxed some of the premium already established. July Class III, for example, finished around a $1.65 cheese equivalent price. CME spot is averaging a high $1.50 price now.  

The July Class III Contract alone increased around 17 percent during May, leaving the futures forward curve to welcome June in quite a flat fashion. As of yesterday’s close, the July to December prices ranged from $16.33 in July to $16.00 in December ― a far cry from the cost-of carry structure of low $14.00 prices to mid $15.00 prices of four weeks ago. 

What should we expect from here? 

While demand appears to have grown over the course of the month, the market still must grapple with unyielding global economic concerns. Closer to home, the U.S. GDP growth was downgraded this week with the Commerce Department's second estimate, which showed that real GDP grew at 1.9 percent compared to the initial estimate of 2.2 percent. The economic turn-around is proving slow and, when pegged against ample milk supplies, it appears to us that we may see futures return to the more bearish cost-of-carry structure return for a while in June.

Soybeans and wheat couldn’t pull corn lower yesterday and for the second day in a row the corn market has chopped mostly sideways amid otherwise bearish influences. We may eventually see a low $4.00 price, but it may come next month as corn is stable for now and poised for some price strength on a drop of bullish news. 

Good rains have fallen over much of Wisconsin and Illinois over the past 24 hours, but not all parts of the Corn Belt received a dousing. Still, weather is fairly benign for growing crops throughout most of the Midwest.

We look for corn to open 1 to 2 cents lower and soybeans to open 12 to 15 lower.

Daily CME spot market prices:

Block cheese: $1.62 (up 2 cents)

Barrel cheese $1.535 (up 0.75 cent)

Butter: $1.40 (unchanged)  

Grade A NFDM: $1.1725 (up 1.5 cent)

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