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

Trading activity in the Class III futures jumped impressively on Friday as almost 1,600 contracts traded hands in a bullishly strong session. A majority of the activity was contained within the summer months ― June through August ― which combined managed to trade 1,159 contracts ahead of a very hot Memorial Day weekend for the Midwest.  Perhaps the June through August average, which gained 29 cents on Friday to $16.13 to a price level not seen since April 5th, was inspired ― at least in part ― by the weather forecasts for record breaking heat over the holiday.  That, and a 6.75-cent gain in the spot session. 

Together, the Class III market along with cheese futures have been resilient of late, bucking the fundamental bearish pressure off excess milk production brought about by the mild winter and early spring this year. This current bullish bounce will face an imposing challenge in the coming weeks as schools let out for the summer and flood an already heavy market with excess fluid milk. So, the question remains: how sustainable is this rally?

Though no trades took place, the locks jumped 6.75 cents higher on one uncovered bid. This widened the spread between the blocks and barrels to 10 cents, as boosted expectations for an upcoming rise in cheese prices. Cheese futures responded with a rally of their own, mimicking the moves of the class III market, with the summer contracts posting a majority of the activity and biggest gains. The June through August average settled at $1.6297 Friday with a gain of 2.74 cents on the day and a 6.77 cent increase over the previous Friday settlement. Today we will be looking to see how (if) the block/barrel spread is corrected.

 In the grain complex, June options expired on Friday lending to some of the price action witnessed in the grain markets. The wheat market led the grain complex to the upside Friday as the July contract closed 17 cents higher at $6.80, while the July corn managed to settle unchanged at $5.78 1/2. With the continual widening of the wheat/corn spread, the wheat is pushing itself out of consideration for feed rations, which will bring increasing interest to the corn market, eventually narrowing the gap between the two. The July beans managed to climb 6 cents higher to $13.82. The continuing main influence for the grain complex will be the weather. While some rains were seen over the weekend, persistent, elevated temperatures are the main concern for potential yields.

We look for corn to open 2 to 4 cents lower and soybeans to open 8 to 12 higher.

Daily CME spot market prices:

Block cheese: $1.57 (up 6.75 cents)

Barrel cheese $1.47 (unchanged)

Butter: $1.3875 (unchanged)  

Grade A NFDM: $1.155 (up 1.25 cents)

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