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

Class III prices saw an interesting session Tuesday, as prices started the day mixed suddenly jumped to nearly 20 cent gains early morning then pulled back and briefly traded lower following spot before settling steady to 6 higher. Both May and June cleared 250 contracts traded, yet total volume was under 1,000 at 945 contracts.

The spot market saw price declines in both the block and the barrel, and no buyers entered the market for blocks. Despite that weakness, futures are unwilling to price in further declines as NFDM looks poised to surpass the value of cheese. It didn’t appear to us that any reaction was seen following the release of the milk production report, so that is likely a non-factor. The mixed gDT however was supportive of class IV products, and we think it was ultimately why class III futures didn’t close lower despite the lower spot market.

Producers ought to consider Class III and Class IV put options to protect a portion of their production for the balance of the year. Call to discuss.

Grain prices once again led mostly higher by the wheat market as weather concerns dominate the headlines. Cold and rain is what we’ve got in the Upper Midwest, and forecasts are for that to continue for the next two weeks, which would push us into May with likely minimal planting progress. That fear of a late spring is putting a lot of question into the markets mind about the potential to realize not only the expected sharply expanded acreage, but also increase the chance of an under-yielding crop.

Concern over dryness in wheat-growing areas of China, the EU and the already-parched southern U.S. continue to support concerns over potential yield losses of those crops in the ground, and snow for the Dakotas saw spring wheat Minneapolis futures up 29 cents to 9.43 today, KC was up 30 to 926 and Chicago was lagging with just 10.75 cent gains to 785.75.  Despite weakness in old crop corn, skyrocketing wheat prices are lowering the chance of any substitution that has been widely expected late in the crop year.

We look for corn to open 11 to 14 cents higher and beans to open 12 to 15 higher.

CME spot market prices:

Block cheese:  $1.62 (down 0.75 cents)  

Barrel cheese:  $1.5825 (down 2.25 cents) 

Butter:  $2.00 (no change) 

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Source:  FCStone/Downes-O'Neill