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.

Volume has been fairly strong in July thus far, but recent trading volume in Class III futures and options were the largest we’ve seen since May 25 and one of the strongest volume days of 2010. CME spot market gains have been slow and steady, but continue to fuel enough momentum to keep the upward track on futures prices in Class III and cheese.   

Current fundamentals in the cheese market suggest higher prices in the near-term. Summer heat, tightness of fresh cheese, strong exports, decent second-half demand prospects and high butter prices all contribute to the short-term strength.   

However, as summer heat subsides and higher cheese prices likely ration fresh demand, more cheese users will look to inexpensive product in inventory as a secondary source, and we all know the U.S. dairyman’s resolve when it comes to producing more milk in swift fashion.  

Our recommendation for producers is to take a hard look at protecting your future milk price for the remainder of 2010 with put options.  While rising milk prices are boosting the spirits of dairymen that have struggled over the past 18 months, remember the lessons of 2008/2009 as a reason to protect your income in case fundamentals shift without warning as it did in December 2008. Call today to let us assist you with a marketing plan for your milk for the remainder of 2010 and into 2011.

Source:   FCStone/Downes-O'Neill