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

The Class III futures traded mixed yesterday with nearby months trading slightly softer and deferred 2013 contracts trading firmly up to 10 cents higher. Total volume was 818 contracts on the day with August trading nearly 350 times. Volume was fairly heavy, given the lack of any activity in the spot session on the day and options volume remained very strong with over 1k calls traded on the day and nearly 600 puts. The heavy option volume seems to us to be protection against continued heat in the Midwest driving milk production lower in combination with fear of higher milk prices being needed due to the big run-up in corn pricing.

The grain markets opened sharply higher yesterday as weather continues to support further gains. Prices, however, softened throughout the day as a continued divergence in the two weather models has one showing very minimal rain coverage and another showing a nice soaking rain for a majority of the Corn Belt into the weekend and in the six- to 10-day timeframe, as well. In addition, the planting intention and stocks report will be released Friday morning and the grains have rallied over $1.00 on corn and over $2.00 on soybeans, so it seems likely that participants will look to take some profits ahead of the report and long weather weekend ahead.

For today, we’d expect that the market would trade rather calmly, as is generally the case ahead of reports, with perhaps position squaring leading to a slightly lower session. 

We look for corn to open 8 to 11 cents higher and for beans to open 4 to 7 higher. 

Daily CME spot market prices:

Block cheese: $1.6525 (unchanged)

Barrel cheese $1.675 (unchanged)

Butter: $1.52 (unchanged)  

Grade A NFDM: $1.2275 (unchanged)

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