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

Class III gave up some recent gains Thursday as just over 900 contracts traded mostly lower amid spot block pressure, as well as dry whey futures price weakness. After starting mostly mixed, futures quickly sold off during ― and after ― an active spot session that narrowed the spread between blocks and barrels. 

The block cheese price dropped steadily throughout a full session to 5.5 cents lower. Barrels were bid up 4.5 cents to $1.60 mid-session and fell back towards unchanged on aggressive offers, finishing 0.75 cents higher by the final call. Intra-day futures lows were between 40 and 60 cents lower in the nearby months as Open Interest gained, but not by much (Open Interest declined in the two nearby months).

So, the $1.70 market was fleeting and spawned what amounts to a corrective downward trade for futures. We expect spot cheese to continue to close the 7.25 cents spread and futures to continue to correct downward as dry whey futures recoil from their recent spike rally. A mid- to high- $1.60 cheese price just doesn’t appear very sustainable for the time being. Perhaps warmer weather, a weaker dollar, and resurgence in export demand for Q3 and or Q4 will change that current outlook. But we must anticipate that weaker Class IV pricing and slow mozzarella sales will attract milk to cheddar block production in short order.

Corn traders were caught between European financial worries on the bearish side and a slightly warmer, slightly drier six- to 10-day Corn Belt weather forecast (though rain is still expected over the weekend into the beginning of next week). With the fundamentals leaving a choppy trade, it was likely the unwinding of the “short corn, long bean” spreads that have worked for the past two months that propped up corn prices and sent bean prices into negative territory. Now that beans have bought some acres, look for more of that action to continue. Look also for traders to get jumpy and for volatility to increase into the corn pollination period. 

Corn export sales made a marketing year low of just 92,100 tons, down 63 percent from the previous week and 61 percent from the prior four-week average. Soybeans picked up the slack with old crop soybean sales at 425,100 tons, up 93 percent from the previous week, but down 9 percent from the prior four-week average.

We look for corn to open 1 to 3 cents lower and for beans to open 9 to 12 higher.

Daily CME spot market prices:

Block cheese: $1.645 (down 5.5 cents)

Barrel cheese $1.5725 (up 0.75 cent)

Butter: $1.455 (up 0.5 cent)  

Grade A NFDM: $1.2225 (up 0.25 cent)

These data and comments are provided for information purposes only and are not intended to be used for specific trading strategies. Commodity trading is risky and FCStone Group, Inc., International Assets Holding Corporation, and their affiliates assume no liability for the use of any information contained herein. Although all information is believed to be reliable, we cannot guarantee its accuracy and completeness. Past financial results are not necessarily indicative of future performance. Any examples given are strictly hypothetical and no representation is being made that any person will or is likely to achieve profits or losses similar to those examples. References to and discussions of exchange traded products are made solely on behalf of FCStone, LLC. References to and discussions of OTC products are made solely on behalf of INTL Hanley, LLC, and OTC products are only available to eligible counterparties.