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

After both blocks and barrels edged 2 and 2 ¼ cents higher, respectively, April-June Class III futures failed to continue their week-long climb, closing 6 to 15 cents lower. Second-half prices finished slightly higher on the day, but buyer enthusiasm from July to December seems to be fading as well. Overall, it appeared to be a moderate volume day of position consolidation after a sharp rise in prices this week.

The market has wrestled all week with increased concern surrounding the growing drought in New Zealand and corresponding firmer global dairy prices, on one hand, and reports of rising milk receipts and burdensome cheese inventories here domestically on the other. While we see that buyers tend to find value in becoming more aggressive owning cheese in the mid-$1.50’s as spot is the cheapest price on the board, we suspect they have little incentive to push spot prices much higher to end the week.  Even if they do decide to continue aggressively buying, we don’t believe it will take much more to entice sellers back to the exchange.

In a nutshell, we see this recent Class III/cheese futures rally as both a bear-bounce as well as perhaps some foreshadowing of price action to come. It’s a bear-bounce in the short-term because the rally has respected technical areas of resistance, dialed in too much premium for what we see as adequate and has occurred in a very short amount of time ― bear bounces happen rapidly and indiscriminately.

Spot session results:

Block cheese: $1.59 (up 2 cents)

Barrel cheese $1.58 (up 1.75 cent)

Grade A NFDM: $1.4975 (unchanged)

Butter: $1.615 (up 1.25 cent)

Grains have taken a back seat to the timid but impressive rally in U.S. equity markets and burgeoning activity in residential real estate that has absorbed most market commentaries this week. The news tide may turn back to grains a little today as the trade quietly awaits the Crop Production and Supply/Demand figures from the USDA to be released at 11 a.m. central today.  Traders are expecting a ho-hum, nearly unchanged-from-last-month report here, and that is precisely why we should be on guard for a bullish surprise on the heels of the recent losses. Still, any sustainable rally will seemingly have to come from weather worries. Even with all the weather to come through the western Corn Belt during the past three to four weeks, only a slight dent has yet been made on the drought monitor included below. 

This morning, we look for the grain complex to open mostly unchanged with corn slightly higher.

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