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

Class III prices opened the session by moving mostly lower prior to the spot cheese trade, but strong buy side interest pushed the market 2 cents higher on five trades. A sizeable seven bids were left working as the market closed as well, only fueling the speculation that prices will continue to move higher.

The Class III futures reaction was, however, a bit muted in comparison to the strength in the spot markets as they continue to hold a significant premium.

It would seem that the bulls are still currently in control, and, while there is some thought of a breakout move to come as we discuss the current situation, it seems milk is available everywhere. And, despite the international strength, many have doubts about just how far the market can run in the short-term. Despite this, it’s hard to deny the technical indicators are showing bottoming action and the potential for a breakout move to the upside remains.

Spot session results:

Block cheese: $1.57 (up 2 cents)

Barrel cheese $1.5625 (up 2.25 cents)

Grade A NFDM: $1.4975 (unchanged)

Butter: $1.6025 (up 0.25 cent)

With the USDA report approaching, the grains saw extremely sharp moves yesterday. Wheat continued to lead the market lower, but there was big movement in the spreads, as well, with nearby months dropping sharply vs. the new crop contracts. May wheat finished 20.5 cents lower at 688.5, while May corn is now right on par with wheat, down 20.5 yesterday to 688.5 and soybeans saw a ½ a cent drop in May to 1466. By comparison, Dec corn lost only 7.75 cents to 544.25, our first settlement below the $5.50 mark going back to June. November beans finished the day 3.25 cents higher at 1278.75. Weekly ethanol data showed production at 805 barrels per day down slightly from last week’s 812 while stocks fell by just 1 million gallons. There was chatter that with the wheat corn spread being so tight, a number of plants have posted bids for wheat. With a downside breakout looking possible on the charts, but a report coming Friday morning, it may be a good idea to look for upside pricing protection via options.

This morning, we look for the grain complex to open slightly higher, showing a moderate recovery after yesterday’s weakness.

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