Dairy prices stage a rally on CME

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Editor’s note: This market commentary is provided by the Dairy Division at FCStone in Chicago, Ill.

A holiday week begins ― and what a way to start it off with a rally across the dairy complex. Cue the fireworks!

The Class III market started the week off with prices climbing the most in the 3rd quarter than they had since June 5. The 3rd quarter pack average settled out the day +0.50 to $18.15. July and August contracts were the benefactors of not only the most volume on the day, but also the largest price increases with July gaining 49 cents on 506 trades and August gaining 56 cents on 627 trades.

High temps in the western U.S. and already reported losses of production due to the extreme heat in the area were the main catalysts for the move pre spot. We had heard reports of producers out West losing anywhere from 5 to 9 pounds of milk per cow since the heat rolled in, and expect to see more of this as the heat hangs on for the next few days. We are officially into summer, folks, and while this is supposedly a short-term heat wave and temps are to moderate more by the weekend, we are reminded that there is a lot more summer to come and we may see more of these events as time rolls by.

A one-day breakout does not a trend make! It is understood that we were much oversold coming into yesterday’s trade, and we were due for a bounce. Remember that we have already had two bull bounces over the last two months that have led to ultimately lower prices. Let’s see if or how much continuation we get before we get on the bandwagon and start calling for $20 milk. It would be prudent, however, for those that have not locked up anything for the 4th quarter to get some cheap floors in now while you can.

Spot session results:

Block cheese: $1.64 (up 0.25 cent)

Barrel cheese: $1.61 (up 1.25 cent)

Grade A NFDM:  $1.73 (unchanged)

Butter: $1.4775 (up 5 cents)

Grains opened the week with a continuation from Friday’s session with old-crop corn moving higher and new-crop moving lower, but not markedly so. Around 11a.m.Chicago time, we saw a big shift in sentiment as July corn fell off of the highs and moved markedly lower on the day. The July corn contract went from $6.9000 to settle at $6.5550 down – 23.75 cents on the day and July beans went from their high of $16.0425 to $15.7050 to close up 6.00 cents on the day. While export inspections were a bit above estimates, that did very little to move the market. It was reported that numerous interior U.S. corn basis values were falling. We heard reports of 10 to 20 cents lower in the central Midwest, which spurred on a sell-off in old-crop corn pulling other contracts off their highs, as well. Funds continued to liquidate positions today as well in corn and beans. Since Friday, funds have liquidated 39,000 contracts in corn and 12,000 contracts in beans.

This morning, we look for a slightly higher open across the board.

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