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

What began as a mostly quieter choppy trade for Class III last week ended on a firm note on Friday. One thousand contracts traded hands with 690 of those trades reserved for the November and December contracts alone, which finished up .06 and .39 respectively. But futures pushed higher into Q1 of 2012 despite technical resistance. Open interest also increased by 251 contracts giving some reliability to the rally. Late week strength in both blocks and barrels was the main driving force behind Friday’s bounce. Still, it feels like it could be about the last big push before the tank is empty.

What looked to be a fleeting $2 cheese market by mid-week got re-ignited as block cheese gained 5.25 of the 7 cent increase for the week on Friday, closing at $1.95 per pound. Not to be outdone, the 5 cents barrel bounce helped post a 6-cent gain on the week to finish at $1.98. We expect to see more buy interest in spot cheese today as domestic demand has not yet cooled. We also expect, however, that these lofty levels will free up some product by week’s end. This is the highest cheese price since Aug. 17. 

While Class III appeared to be shucking more bearish technical indicators (resistance) and gaining momentum to the upside, cheese futures left something to be desired. Sixty-five contracts traded between .017 lower and .028 higher Friday with the bulk of the volume not in the front months as was the case with Class III, but in Q1 and Q2.  These months also comprised the biggest losses for the day.  The Q1 pack was flat for the week at $1.658 (versus $1.651 prior week).   

Class IV volume was light Friday with just seven trades taking place that dropped December by 45 cents. Overall the week proved to be a relatively active one for the contract. While the first half of 2012 saw some individual trades throughout the week, the July to December pack traded several times at the $17.00 level, a sticking point for the market over the past several weeks.  Most months remained unchanged with the biggest shift in prices being rather small as Q1 gained 8 cents to 16.65. We look for more of a two-sided trade at current levels to start the week. 

Sunday night class III trading saw active volume with 46 trades by late night. All of the volume came from November through January and prices in those months were 4 to 14 higher. By this morning 80 trades took place with December and January off to the races at +19 and +12 respectively also with most of the trading volume as well.

We look for milk to open .05 to .15 higher. 

Meanwhile, the butter market closed out the week mixed, settling between up 3.325 cents to down 1 cent, with 31 contracts trading Friday.  November-December average saw a decline of 1 cent to close at 1.73, while the Q1 pack settled unchanged on Friday at 1.65.  The spot market continued its recent downward trend, falling 3 cents to 1.74 on no trades.  We look for the spot market to maintain its decline into this week as holiday demand continues to subside.

We look for butter prices to open mixed. 

 The grain markets saw choppy trading last week as corn closed down 7 cents to settle at 638.5, wheat ended down 3.25 at 616.75, and soybeans up 8 cents to 1166. The week was defined by heightened volatility as the grain complex saw price declines on the week. The dollar swung wildly throughout the week, but found its footing as the week progressed helping to pressure grain prices lower. 

Wednesday the USDA released its November supply/demand figures. The corn yield dropped to 146.7 bushels per acre, down from 148.1 in October.  Soybean yield fell slightly, estimated to be 41.3 bushels per acre, down from 41.5. The wheat yield fell to 43.7 from 43.9.  Even with the lowered yield expectations, the grain complex seems to want to chop sideways to lower in the near term.  Informa released its 2012 planting estimates on Friday with the corn acre estimate increasing to 94 million from the previous estimate of 93.1.  Soybean acres are estimated to now be 76.1 million down from 77 million.  The wheat acre estimate was left unchanged at 57 million.     

We look for corn to open steady to 2 lower, beans to open 8 to 10 higher, meal to open .50 to 1 higher, and wheat to open 1 to 3 cents lower this morning.

Daily CME spot market prices:

Block cheese $1.950 (up 5 1/4)

Barrel cheese $1.98 (up 5)

Butter:  $1.74 (down 3)  

Grade A NFDM: $1.435 (unchanged)

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