September Dow futures responded well to yesterdays rumor that the world is not going to end this week.  Sep Dow finished the day up 153 points at 11,403.  The contract is now more than 1000 points above the August 9th swing low, but still 1,300 points below the July 23rd high.  It  will likely run into heavy resistance near the 50% retracement level.  Since the US debt market lost its sacred cow status, world financial markets have been struggling to price in the additional risk.  FYI, Risk-less assets do not exist.  They never have and they never will.  You can park trillions in Treasury markets but the chance of losing your money has now increased.  You can purchase default swaps on corporations and sovereigns, but they are only as liquid as the institution that signed the note.  You can not write away risk.  You can however magnify it, as we all know to well.  This brings me to the point that demand for tangible, liquid assets such as commodities will increase.  Not necessarily the demand in the form of consumption but demand in the form of investors willing to ride out some of your losses in order for a seat on the bandwagon once good times arrive.  Producers should be all for the additional investment. Just prepare for storms that will follow the money.  

September Class 3 milk, under pressure from indecisive cash cheese markets, continues to flop around with a $19 handle.  Cash markets still price the contract above $21, but longs surely don't want to be in the way of the biggest cash trader, who now all of a sudden is bringing product to town.  Shorts would come out and play, but considering the contract is discounted nearly $2 per cwt, they really don't see the value of betting further downside.  With that said $20 looks a whole lot better than the $18.62 print last Friday morning. Watch for action in the fourth quarter 2011 and first quarter 2012 packs.  If size starts to show on the buy-side then demand is likely strong at the plant level.  So far the action has been muted leading me to believe this recent bump in futures and cash prices are short term corrections. For those that are stressing about all out collapsing milk markets, watch the December 2011 Live Cattle and December 2011 Corn futures contract.  Both are telling me that milk prices should find support once these cash cheese sellers clear their inventory.  It takes money to make milk.  Take away the money this time and these dairy farms will turn to feedlots faster than an auctioneer can sell them.

January thru June exports of Cheese at 119,468 tons accounted for 5% of its production

(more than 1/2 of the cheese exported in June went to S.Korea)

January thru June exports of Powder at 218,158 tons accounted for 48% of its production

January thru June exports of Butter at 39,854 tons accounted for 9% of its production.

Sep Dow down 113 to 11,290

Sep Crude down $1.39 to $86.49

Sep Corn down 5.75 to $7.015

Sep Class 3 up 7 to $19.70