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.

Day Two of the new CME cheese futures contract was quiet with only two contracts exchanging hands, but not without a lack of bids and offers being posted throughout 2010 and 2011.   Class III volume remains relatively quiet as well with only 800 contracts traded yesterday.   While the price of CME spot barrel cheese fell a penny, blocks held steady and with the absence of a major cheese seller in the market yesterday, Class III futures stabilized and posted modest gains.   Consolidation and light profit taking a likely the culprits of yesterday gains as open interest fell slightly throughout the complex, meaning more traders removed positions from the market.   However, it is our opinion that the sellers of this market have run out of gas.   Most of the premium has been eroded from futures prices and it will take continued cheese price declines to force more selling.  We believe that the mid to upper $1.30s constitute a bottom for cheese prices for the remainder of this year barring any major fundamental changes.  

CME spot butter took a breather yesterday after eclipsing the $1.70 mark on Tuesday as spot prices remained unchanged.   Futures volume was rather light and much of the volume traded Dec 2010 - Feb 2011 as sellers are likely protecting inventories in those historically lower priced months.  

Dry whey futures continue to rocket higher, particularly in 2011.   With the exception of August 2010 that lost a penny, dry whey futures gained 1/4 penny to four cents higher as July & Aug 2011 are nearing the 40 cent mark.   Open interest actually lost two contracts in dry whey yesterday so the move may be a little premature in nature.   Unless spot dry whey prices are poised to make a run in the coming weeks, these impressive numbers in 2011 appear to be a bit high.  But trading over the last couple of days has caught our eye and we will continue to look very closely at the whey market over the coming days to see if these moves translate into higher prices in 2010.

More than 50 US lawmakers are calling on the U.S. Agriculture Department to keep Monsanto's "Roundup Ready" alfalfa out of US farm fields despite a Supreme Court ruling this week that cleared the way for the government to allow limited planting pending environmental reviews as Monsanto is seeking.  The letter written to Ag Secretary Vilsack explains that allowing the use of the biotech alfalfa will cause significant economic loss to the organic dairy industry and US alfalfa producers could lose up to $197 million in lost sales to export markets that are unfriendly to GMO crops.  

US Attorney General Eric Holder and other federal and state officials are scheduled to attend a public workshop this Friday in Madison, Wis., focusing on anticompetitive practices in the dairy industry.   The hearing is being organized by the US Department of Agriculture and the Justice Department.   Others expected to attend include USDA Secretary Tom Vilsack, Democratic US Sens. Herb Kohl and Russ Feingold, and Wisconsin Governor Jim Doyle.  

Corn prices remained under pressure yesterday and at the risk of sounding like a broken drum, good weather and weaker technical formation has had a lot to do with the recent pressure.   Even the news of the first cargo load of corn being accepted and unloaded - after a bearish delay at the port in Shangdong, China earlier this week - was not enough to spark a goodwill rally yesterday.  Prices in the grain complex were firm overnight and we expect that to follow-though to the opening of the day's session.

6/23  Class III Futures
:   Volume:  807  Open Interest (OI) Change:  -13  Total OI:  28,932
6/23  Class III Options:
  Est. Put Volume:  194   Total OI:  21,172   Est. Call Volume:  140  Total OI:  20,187
6/23  Spot Markets:
  Block Cheese $1.3975 (UNCH),  Barrel Cheese $1.37 (DOWN 1),  Butter $1.71 (UNCH),  NFDM: A $1.25 (UNCH),  X $1.2475  (DOWN 1/4)
6/23  Other Dairy Futures Volume:   Butter:  35   Dry Whey:  34    NFDM:  10    Class IV:  0   CHEESE:  2

6/23 Individual Cheese Futures Prices, Change, Volume & Open Interest
Jul - $1.423               UNCH                Vol:  0                OI Change:  UNCH
Aug - $1.474        DOWN .001        Vol:  0                OI Change:  ZERO OI
Sep -$1.52        DOWN .015        Vol:  2                OI Change:  UNCH
Oct - $1.54              UP .004        Vol:  0                OI Change:  UNCH
Nov -$1.55               UNCH                Vol:  0                OI Change:  UNCH
Dec -$1.55               UNCH                Vol:  0                OI Change:  UNCH

6/23 Individual Class III Month Prices, Change, Volume & Open Interest
Jun - $13.57      UP 1                Vol:  55        OI Change:  DOWN 53
Jul - $13.25        UP 7                 Vol:  152                OI Change:  UP 1
Aug - $13.59      UP 2                Vol:  180         OI Change:  UP 77
Sep - $14.31       UP 6                Vol:  195          OI Change:  DOWN 48
Oct - $14.58       UP 6                Vol:  105                OI Change:  DOWN 14
Jul-Dec 2010 Avg:  $14.13            UP 0.05/cwt
Jan-Dec 2011 Avg:  $14.56
          DOWN 0.04/cwt

Source:  FCStone/Downes-O'Neill