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

Class III futures finished the week strong, aided by the surge higher in the spot cheese session. The futures settled between two and 40 cents higher in the 2012 contracts on a total of 1,177 trades. The 2013 contracts settled mixed, with just the March13 contract closing lower. The third-quarter futures pack settled 20 higher at $17.94, with a gain of 57 cents on the week. 

The futures remain within a bullish trend, supported by the continuing weather concerns related to milk production. The Class III market has rallied continually since early May. and much of the expected decline in milk production should already be factored into the market. While the market remains strong, the $19.00 price level should act as the next major resistance level for the near-dated contracts. The more we hear of talk concerning the % increase in corn relative to that of milk (lagging), meaning milk has to catch up, the more we struggle with that mentality. What is the lag associated with that? Remember that ethanol accounts for a majority of corn use nowadays. Remember 2009? Even in 1988, the drought year everyone is currently comparing the corn crop to, milk prices were lower in 1988 than in 1987… just be careful betting on correlations that haven’t always held well. No business is guaranteed a profit by the market.

The grains had another weather-controlled day alongside some profit taking last Friday to close out a week and heading into a weekend which held possibilities for some rains. And heading into the weekend, continued rumors of some rains which could have been nothing or could have been solid, were the hot topic. The weekend came and went without material rain and we opened 9 higher in corn last night and swiftly jumped to 20 and then 30 higher, with beans leading the charge most of the night shortly after the open.

Friday, the trade was mixed. We finished down only in July, down 15 on its last trading day, but the rest of the way out we saw the continued concerns spurring prices to finish up off their day highs, but up  anywhere from 8 to 10 cents. December corn finished at $7.40 ¼, before blowing through resistance at $7.49 last night and running up to $7.70. Beans were bullish on Friday, and stayed bullish through the minor pullbacks along the way. November beans finished up 23 ½ at $15.52. The trade is all about the weather, and with more hot weather on the way we will watch the price changes closely.  

We look for another Monday of drastically higher grain prices on the open.

Daily CME spot market prices:

Block cheese: $1.68 (up 1.5 cent)

Barrel cheese $1.68 (up 2 cents)

Butter: $1.55 (up 1.5 cent)  

Grade A NFDM: $1.265 (up 0.5 cent)

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