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

Class III milk futures tapped the brakes yesterday despite another spot session that saw gains. Losses in the futures market were heaviest in the first half of 2014, with the first half pack shedding 24¢, and the March contract down 45¢ to settle at $20.60/cwt.
Both blocks and barrels gained 2.75¢, settling near five-year highs.
Look for some spread convergence to continue near-term between nearby cheese futures and Class III months vs. deferreds.

The question is whether or not yesterday’s disconnect between the spot market performance and the futures market behavior was a short-term correction, profit-taking or a reversal of trend? With futures still trading at a discount to spot, this has the feel of profit-taking, and maybe a “wait and see” approach to what should be a post-Super Bowl seasonal softening.

Cash-settled cheese futures settled mixed through 2014, with the first half closing in the red through June, and the second half closing from unchanged to slightly better on decent volume. The first half pack shed 0.01¢ to finish at $1.9827/lb.

USDA’s Cold Storage numbers came out after the close and are construed as neutral to bearish for cheese, but bullish for butter, although much of the data “may already be baked into the cake.”
This morning, we look for Class III, cheese and dry whey to open higher. We look for Class IV, butter and NFDM to open soft.

Jan. 22 spot session results:
Block cheese: $2.27 (up 2.75¢)
Barrel cheese: $2.425 (up 2.75¢)
Grade A NFDM:  $2.0850 (down 1.75¢)
Butter: $1.94 (up 7.0¢)

Grain futures
The grain complex traded both sides of unchanged yesterday in an uneventful session. March corn continues to struggle, with moving averages between $4.25-$4.30/bushel, decent export numbers and bearish fundamentals. Our neighbors in Argentina continue to battle with less-than-ideal weather conditions in their growing season. Are we seeing a temporary bottom being put in here? The fundamentals suggest not, however it is starting to feel as though some of the selling pressure is easing which would be supportive.

The soybean market stalled following the sharp losses it experienced on Tuesday. Exports remain robust, with cumulative bean inspections through 20 weeks of the 2013/2014 marketing year stand at 1.041 billion bushels, a record pace. Technically speaking, Tuesday’s debacle breached some pivotal moving averages that will now act as resistance levels between $12.90-$13.00/bushel.

Grains look to open higher across the board this morning.

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