Editor’s note: This market commentary is provided by Dave Kurzawski and Eric Meyer, risk-management consultants with FC Stone/Downes-O’Neill, Chicago, Ill.

Class III futures finished mixed but mostly lower as CME spot cheese price declines accelerated yesterday.  At the start of the CME cash trade, a lone bid pressed cheese prices up 1/2 cent before sellers appeared and continued pushing prices down.  Buyers do not appear to have a sense of urgency in owning cheese at these levels and we are now at or below support levels established back in mid-April.   While we expect buyers to see value at these present levels with the second half futures pricing cheese in the low $1.50s, until block and barrel cheese prices stop falling, buyers tend to wait on the sidelines for even better days.   Overnight Class III futures are trading 2-15 cents lower on decent volume in the 2010 months.

The opposite seems to be the case in the butter market.   While spot cheese prices have fallen for the past two weeks, butter prices have been quietly inching higher during the same time period.   With numerous buyers looking to acquire product at the exchange, particularly over the past few days, we continue to believe that there will be little to no resistance at the $1.60 level.   Butter futures trading was light but higher yesterday as stacks of bids reside at or underneath the market with little on the offer side of the ledger.   Expect a firm open to butter today.

NFDM prices declined yesterday as offers continue to swoop into both futures and swap markets alike for later this year.  Confidence seems to be waning that current NASS and CWAP prices in the upper $1.20s will hold.   Aug-Dec futures and swap transactions are trading at or less than $1.20.   International prices will be released by the USDA later this morning.

Corn prices ought to get a boost early today from a bullish June Crop Production Report released this morning.  The USDA left crop production the same at 13.370 bln/bu., but increased usage (including exports) enough to trim ending stocks by quite a bit more than was expected.  Pre-report estimates pegged old crop carryout at 1.724 billion bushels.  The USDA said that number should be closer to 1.603.  Even more surprising, the USDA dropped carryout for 2010/2011 to 1.573 billion bushels versus a pre-report trade estimate of 1.83.  The soybean and wheat numbers arrived for the most part in line with expectations.  Corn is called to open 5 to 10 cents per bushel higher this morning.  We always like to remind our readers that on report days it is more important how the market finishes than how it begins.  And in this case we expect traders to fade this report by later today.  

  Finally, something special happened for Chicagoans last night that has not occurred in 49 years.   The Chicago Blackhawks won the Stanley Cup for the fourth time in team history going back to 1934.   The party will be on this weekend as Chicago turns back into a hockey town.

6/9  Class III Futures
:   Volume:  813  Open Interest (OI) Change:  +32  Total OI:  37,793
6/9  Class III Options:
  Est. Put Volume:  125   Total OI:  20,137   Est. Call Volume:  141  Total OI:  19,316
6/9  Spot Markets:
  Block Cheese $1.3625 (DOWN 2),  Barrel Cheese $1.3275 (DOWN 2 1/4),  Butter $1.5925 (UP 3/4),  NFDM: A $1.25 (UNCH),  X $1.25 (UNCH)
6/9  Other Dairy Futures Volume:  
Butter:  6   Dry Whey:  0    NFDM:  2    Class IV:  4

6/9 Individual Class III Month Prices, Change, Volume & Open Interest
Jun - $13.45      DOWN 4         Vol:  103        OI Change:  UP 43
Jul - $13.20       DOWN 6         Vol:  383        OI Change:  DOWN 105
Aug - $13.75     UP 1                  Vol:  96           OI Change:  UP 22
Sep - $14.40      UNCH                  Vol:  108        OI Change:  UP 17
Oct - $14.54       DOWN 2         Vol:  45          OI Change:  UP 16
Jul-Dec 2010 Avg:  $14.15           DOWN 0.03/cwt  (**New Contract Low)
Jan-Dec 2011 Avg:  $14.62
          DOWN 0.03/cwt

Source:  FCStone/Downes-O'Neill