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

Huge gains in Class III continued on Jan. 21 as futures settled anywhere from unchanged to +56¢ in the first half and +2¢ to +24¢ in the second half, amid only modest gains in spot. The disconnect between futures and spot is closing. 

Cheddar blocks and barrels both gained 1.25¢/lb. on the day, with blocks settling at $2.2425/lb. and barrels at $2.2150/lb. Blocks have now seen 19 straight sessions with no trades and 30 straight sessions with no offers, while barrels have seen 11 sessions without an offer.

Fundamentally, little has changed with exports fueling the recent surge upwards.

GDT seemed to only reinforce the international demand picture, with most products seeing increases outside of SMP. This most recent auction saw cheddar and butter post the largest gains, both up over 10%.

USDA’s monthly Milk Production report is due to be released on Jan. 23, with the expectation of a slight production decrease. This lower expectation comes as producers continue to struggle to find quality forage, resulting in expected lower milk per cow. But we should not lose sight of a growing milk production situation for the time-being out West as warmer, dry conditions are bringing on an early spring flush. The long-range ramifications of drought conditions in places like California could eventually lead to milk supply problems there later in the year. 

Abroad, Australian production has seen some hiccups with portions of the production area experiencing a heat wave.  Still, the rally in Class III and cheese futures yesterday centers more on the demand side of the equation, with some buyers in the midst of a full-court press to get product.

This morning, we look for Class III and cheese to open steady to slightly higher, and dry whey to open mixed.

Jan. 21 spot session results:
Block cheese: $2.2425 (up 1.25¢)
Barrel cheese: $2.1950 (up 1.25¢)
Grade A NFDM:  $2.1025 (up 0.5¢)
Butter: $1.87 (up 1.75¢)

Grain futures
The corn markets were quiet, dismissing the collapse of soybeans.  Weekly export inspections were at 29.8 million, well above 11.4 million seen a year ago.  Deferred contracts continue to lag, suggesting less of a switch from corn to soy acreage.

Talk of at least four cargoes of U.S. sales being switched to South American soy caused panic in the soybean market, as March beans settled down 36¢. Weekly exports remained strong however, at 56.5 million vs. 48 million a year ago.  Although export inspections are strong, the market may have also been reacting to some beneficial moisture in South America and expected rains for dry areas this week. 

Grains look to open mixed across the board this morning.

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