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

The Class III futures closed out the shortened 4th of July holiday week on a quietly mixed note. Just 447 contracts exchanged hands as traders balance concern over milk production losses due to the recent heat wave against a stable spot market for the week. In fact, it was the Q4 milk contracts that saw the largest gains for the week, finishing up 35 cents on the week to an average of $17.61. This is in contrast to our nearby months ― the third-quarter futures pack ― which actually fell by 4 cents during the week to settle at $17.37. While it is not a significant loss, it may foreshadow a downward market correction for futures in the coming days.

While weather forecasts give the Midwest a much-needed cool-down for the week (highs in the mid-80s), without rain outside markets may continue to be a supportive feature for the dairy complex. However, we have to ask our customers to take a hard look for cash flow and profit potential spanning well into Q4. A mid-to high-$17.00 Class III price may work for your dairy, and, if it does, you ought to shelve all the analyst rhetoric and secure profit. It is your job to secure profit when everybody else thinks there is more price increases to come.

The grain markets retreated Friday, falling hard as traders booked profits from the recent bull rally on expectations for the triple-digit temperatures across much of the nation to recede in the near future. The December corn contract settled 15 ½ cents lower to $6.93, helped by the below expectation total of just 154k MT of new and old corn crop exports. Trade expectations had ranged from 200K to 500 MT. The November soybeans settled 20 ¾ cents lower at $15.05 ¾ while the December wheat fell 25 ¼ cents to $8.21 ¾. 

Informa released their crop yield numbers Friday, which appear to be overly optimistic in the face of the fact that the current USDA crop ratings are the worst since 1988. Informa’s expected corn yield now sits at 153.5 bushels per acre, while the soybean yield came in at 42 bushels per acre. The shift in forecasts to lower temperatures over the next several days has helped to curb the bulls’ appetite for grains temporarily, but if substantial rains aren’t seen soon, prices should again push higher.

Weekend weather finally cooled late in the weekend and looks cool for a couple days, but little if any reports of precipitation came in and the temp reports look to heat up again; the bulls are fed and still hungry.

We look for the grains to open significantly higher (yet again).

Daily CME spot market prices:

Block cheese: $1.64 (unchanged)

Barrel cheese $1.675 (unchanged)

Butter: $1.5325 (up 0.5 cent)  

Grade A NFDM: $1.2275 (unchanged)

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