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

Strong Sunday night volume led to higher prices as the week opened and the market got what it was looking for when the spot markets moved higher by 2.75 cents each at mid-day, which kept nearby futures months supported and led to prices closing 15 to 35 higher from Sept through Dec 2012.

2013 prices were firm as well though gains did not keep pace with the 2012 months. Through August 2013, futures were 1 to 21 higher with most months posting gains in the low teens. The strong overnight volume carried through into the day session as nearly 2,000 trades took place.

Prices are now breaking through technical resistance levels and setting new highs in most months, continuing the recent trend as the market tries to balance the technical strength with the desire to sell futures carrying a sharp premium to the spot markets. Spot gains yesterday support the feeling that demand is still strong at current levels, but market participants are worried that if we see prices reach the 1.90s, as indicated by futures demand, deterioration will occur and perhaps very quickly.  

The grain markets opened the week mixed, led to the downside by soybeans as late-season rains are seen as helpful to the soybean crop. Corn, however, opened with double-digit losses but recovered into the close down just 2.5 cents in December to 805 as the market feels corn losses are now irreversible. Beans closed down 44.5 cents to 1584.25, while wheat prices were slightly higher by 2.5 cents in December to 906.25. Trading volume was relatively light on the day which led to a lower-than-normal intraday volatility.

Prices seem likely to see continued consolidation with corn near the $8.00 mark and soybeans near the $16.00 mark into Friday morning’s report. Any deviation above or below those levels would seem to give the market a bullish or bearish lean into Friday morning. The good news for market bears is that spreads are beginning to move back toward a cost of carry and away from backwardation, which is a bullish signal. This provides some indication that drastically higher prices are becoming less likely to occur.  

We look for corn to open three to five cents higher and beans to open 10 to 15 cents higher.

Daily CME spot market prices:

Block cheese: $1.7375 (up 2.75 cents)

Barrel cheese $1.7125 (up 2.75 cents)

Butter: $1.69 (unchanged)  

Grade A NFDM: $1.40 (unchanged)

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