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

Class III sank early yesterday, but with buyers surfacing in spot prices in the futures for both Class III and cheese sprang back up. We ultimately traded both sides of unchanged, but saw a mixed close although first-half pack prices rose slightly. We must, of course, point out that the market traded on very light volume yesterday and that direction/trend usually moves in tandem with volume. In other words, this seems to be a short-term reprieve from weakness.

Looking a little closer, we expect to see a continued two-sided trade in the spot market as fresh cheese continues to be widely available. Buyers ought to continue to stand in during the spot session as there are both arbitrage opportunities as well as physical hedge opportunities for the next few months to be had. Class III traders will be looking at the bounce in dry whey, which we expect to continue, along with this seemingly impervious buy interest on spot as reasons to potentially take nearby futures higher today. We shall see.  

Regarding butter, a three-cent decline in spot sent futures tumbling again. Since Jan. 11, spot prices have not risen at all and, in fact, they have fallen in all but five sessions. We forecast prices to fall into the mid-$1.40’s long ago and they have met that mark. Futures have switched from pricing in declines to carrying premium. This is probably a sign that the end to price decreases is near — not here yet, but near. Would further price declines into the $1.30’s shock us? No, but unless they happen rapidly we don’t see them occurring.  

Corn and grain prices in general chopped around yesterday. The U.S. dollar was strong and South American weather news is now old news. In front of a USDA report out the 9th, it will take something big to allow further strength of significance. Looking at the charts alone, corn prices have recouped almost all of their losses from the last USDA report and we suspect a flush out of weak longs is what the market would like to do. We look for softness to sideways trading into the report and we will provide estimates tomorrow.

We look for corn to open 2 to 4 cents lower and for beans to open 3 to 5 lower.

Daily CME spot market prices:

Block cheese: $1.48 (down 0.5 cent)

Barrel cheese $1.505 (up 1 cent)

Butter: $1.4625 (down 3 cents)

Grade A NFDM: $1.3325 (down 2.5 cents)

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