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

Spot market activity was really the highlight of the day yesterday as the cheese market has come to a bit of a standstill point. Both blocks and barrels closed unchanged.

Without a price change, however, futures were left without a price direction for the day and that meant a mixed settlement yet again. April closed down a penny, while May was the lone month closing higher by a penny. And, once again, futures in the latter part of the year were showing weakness. From June through Jan 2013, settlements were 2 to 11 lower and volume remained firm in those months as it seems hedging interest is really re-entering the market for the second half over the past few sessions. Further evidence of this can be seen with heavy options volume traded yesterday. Nearby months continue to find some level of support from the steady to sideways cheese market and deferred contracts continue to fall slowly but surely, and declining grain prices aren’t helping the bulls of late either.

Producers should continue to explore options for hedging in the second half of the year while there is still commercial hedge demand, as we don’t see production dropping sharply anytime soon and Oceania continues to move prices lower to stay just below the U.S. market for export bids, keeping the domestic market out of balance. Perhaps heat will be overwhelming and exports will pick up dramatically, but that does not appear to be the current course we are on. For today, we have milk coming out our ears.

The grain markets set their tone early Sunday night, starting off with price weakness and the weakness held throughout the trading day on Monday. New crop corn and soybean prices gave up double digits as an expected rapid planting pace should be seen on the delayed USDA report this afternoon.

Old crop prices still hold fairly significant risk with the very tight supplies, but the market is battling with the potential for a very large new crop production. Funds have been heading for the exits with the recent price weakness and a few of the large banks are calling for an end to the commodity boom cycle with slowing economic growth in China and the ever present worries in the EU. In the short term, we’d look for some continued weakness, though we feel old crop corn should be bought if we get to support at $6.00 and very strong support in the $5.80 area as those levels should hold up for old crop. On new crop corn, as prices continue to fall we feel a small amount of new crop needs should likely be purchased as we near the $5.00 mark as protection against any upcoming weather concerns throughout the summer months.

We look for corn to open mixed and for soybeans to open 6 to 9 cents higher.  

Daily CME spot market prices:

Block cheese: $1.4875 (unchanged)

Barrel cheese $1.46 (unchanged)

Butter: $1.425 (unchanged)  

Grade A NFDM: $1.1775 (down 1.5 cents)

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