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

When was the last time you saw spot cheese gain a significant amount, front month rally and all other months trade lower? Exactly! It’s been a while. Yesterday was an unusual trading session. We started down quite a bit because of outside market influences, something we are often sheltered form in the dairy sector. We turned around those major losses on gains in spot cheese.

But the dairy market fundamentals were not enough to turn all milk prices higher as we chop and grind are way to nowhere fast in milk and cheese price land. Perhaps the cold storage report that was hanging over the market was a contributing factor, although that would strike us as somewhat unusual.

The report was reasonably bearish but neutral in the side that we believe most of it was already priced into the market; it was just a confirmation.  

Cheese futures traded 52 contracts yesterday in a mixed price session. Most of the volume was in 2012 and OI increased by 51 so likely was mostly hedge volume. Prices although mixed, leaned to the upside suggesting commercial hedgers were the aggressors on the day. Since last Thursday, the block price is down 5.75 cents to $1.7250. There have been 25 trades. The barrel price was down 2 cents at $1.700 with 20 trades. The spread is 2.50 cents, outside the historical range of 3 to 5 cents.

Class IV futures saw a January-March pack trade 26 times and that was all the volume in a fairly light trading session which saw very little price change.

We look for milk to open higher.

Spot butter continued its descent, falling 1.5 cents to $1.7850 while futures were pressured in the front months and bid up in the back months. Pressure will likely continue until Turkey Day demand comes into the arena, and frankly, prices to fall low enough to entice the demand that is turned off by how high the price has been — and remains.

We look for butter prices to open quiet.

An all-out grain price massacre based on outside market influences occurred, as money ran for cover, simple as that and we shall leave it at that. We have said for weeks this is a “sell the rally” market and we shall stick with that stance. The market should bounce today/Monday as it has taken quite the shellacking, but it is a bear out there. Overnight corn and wheat prices bounced very slightly while beans kept getting shelled. Stay spread for protection but keep a bearish undertone.

Net wheat export sales were good at 679,500 tons for the 2011-12 marketing year, up 64 percent from the previous week and 66 percent from the prior 4-week average. 

Net corn sales were toward the lower side of expectations at 598,100 tons for the 2011-12 marketing year. Net soybean sales of 404,400 tons were also on the small side.

We look for corn to open 2 to 4 higher, beans to open 10 to 15 lower, meal to open 2.5 to 3 lower and for wheat to open 8 to 13 higher.

Daily CME spot market prices:

Block cheese: $1.7250 (up 1 1/4)

Barrel cheese $1.7000 (up 4 1/2)

Butter: $1.7850 (down 1 1/2)  

Grade A NFDM: $1.490 (unchanged)

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