Editor’s note: This market commentary is provided by the Dairy Division at FCStone/Downes-O'Neill in Chicago, Ill.

The stable spot market couldn’t stop futures from plummeting though most of 2011. The spot market remained quiet yesterday with blocks remaining unchanged at $2.10 and barrels at $2.1350 with no bids, offers or trades. On the futures market, we saw another day with strong volume as over 2,300 contracts traded. Prices settled 3 to 30 cents lower in September through December. We opened the day weaker, and while prices rallied shortly after spot, they simply couldn’t sustain the rally and tumbled as we got into the afternoon.  

We knew that Class III couldn’t stay immune to outside market pressures forever, and it looks like the collapsing equity markets are finally hitting Class III. Nervous sellers are coming to the market in force, while buyers are starting to re-evaluate the demand they will see in the fall.

Class III futures in 2012 settled steady to 5 cents higher. Prices are now within a dime of that magic $17 mark that many producers have been waiting for in all months except December. While yesterday we covered where the current averages are in a historical perspective, we also wanted to point out the real potential for significantly higher milk production in 2012.  We’ve seen increases in herd numbers and the heifer inventories and currently high milk prices point to continued increases in the herd size, but the milk production numbers haven’t followed “trend line” increases on a per cow basis.

With many of young heifers going into their second lactations next year…this could make for an explosive growth in milk production per cow, though feed quality will certainly still be a concern. If the economy remains stalled, thus keeping demand from growing to match supply, we could see quite an imbalance.

Cheese futures traded 28 contracts and pricing finished mixed. The prices are moving in tandem with Class III.

This morning, we look for Class III to open lower in front and mixed in back.

Corn settled unchanged in December at 688.50 while September settled ¼ cent lower at 678.00. We’ve been seeing pictures circulating lately from a variety of fields in the Midwest, particularly Illinois, which are showing ears that aren’t fully filled out. If that’s how Illinois looks, we shudder to think what kind of yields we’ll see. Right now, the trade expects yield to come in somewhere between 155 to 152 bu/acre. We wouldn’t be surprised to see it come in on the low end of expectations eventually, but today’s USDA report is expected to be just north of 155.

Daily CME spot market prices:

Block cheese: $2.10 (unchanged)

Barrel cheese: $2.135 (unchanged)

Butter: $2.0675 (down 0.25 cent)  

Grade A NFDM: $1.51 (unchanged)     

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