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

It was a day of removing risk, seemingly form every portfolio on Earth; dairy did not go completely unscathed. The market opened weak and, despite modestly rising cheese prices, futures remained weak into the close. Corn weighed on dairy prices, so did the increasing U.S. dollar value which had its single biggest one-day price increase in over six months. 

Why, when everyone is pessimistic, has the dollar rallied? There is never one reason, but yesterday a comment was made that we can thank the Navy Seals for the rally. The reserve currency has long been held by a country with uncompromising, unwavering military might. Did we just show the world that we still fit that description very well with the events the led to Osama bin Laden’s demise?     

Milk futures continued their sluggish volumes, trading just 764 contracts. Open interest, too, is falling back as it currently rests at 31,273 vs. 27,815 a year ago; we had been 10k contracts of open interest ahead of a year earlier just a few months ago. 

Milk in New Zealand is basically shut off now; Western Europe is flush, Russia is flapping about not importing but it seems impossible; Asian demand is strong; Japan is still an unknown but expected to rise, and China production is still very suspect.

With slowing growth in China and the U.S., the dollar surge and energy price collapse (metals too), grains could not escape. Rumors or George Soros selling as well as other large funds left prices under heavy fire. But they closed well off their lows. Long only funds are likely forced to liquidate longs from technical sell signals. While the balance sheet is still tight from a fundamental standpoint, prices are under a great deal of pressure this morning.

Overnight spec liquidation continued to be a theme — crude below $100/barrel and all “things” for the most part lower — and grains could not escape the liquidation pull.

Daily CME spot market prices:

Block cheese $1.65 (up 1 cent)

Barrel cheese $1.6525 (up 1.25 cents)

Butter $2.095 (no change)

Grade A NFDM: $1.64 (no change)

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.

Source:  FCStone/Downes-O'Neill