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

A near exact reversal of Monday’s activity occurred in Class III futures Tuesday. In spite of stronger whey prices and even higher spot market prices the Class III market finished mostly unchanged to slightly lower. Prices were weak prior to the spot session, down by as much as 15 cents in 2012. But an uptick in both blocks and barrels, combined with a jump in dry whey futures, made it look as though Class III would rally and close higher on the day. However, it appeared as though the lack of follow-through to the upside by spot cheese buyers took some steam out of the market and prices declined slightly falling to near double-digit losses shortly after the spot session. By settlement, February through July were steady to 8 lower, while the August through December contracts were steady to 3 higher.

Yesterday’s activity did little to make the bulls feel more comfortable. It does seem to us that short term spot cheese has some support, be it inventory building, exports or just a shor- term lack of fresh product. While the market seems likely to chop sideways to higher in the near term, by and large the expectation is that the next significant move will be to the downside.

Grains seem to be focused on technical indicators of late as very little is changing in regards to fundamental factors. Perhaps you could look to a battle for acreage as the cause, but we disagree with price levels already at such lofty heights. Some are talking of strong Chinese demand, with their prices near-record levels as a factor, which could bump up exports in the March report. But we think both feed and ethanol demand have room to decline, especially should corn prices make a move to the upside.

We look for corn to open 1 to 2 cents higher and beans to open 1 to 3 higher.

Daily CME spot market prices:

Block cheese $1.4725 (up 0.5 cent)

Barrel cheese $1.4725 (up 0.25 cent)

Butter:  $1.395 (unchanged)  

Grade A NFDM: $1.2875 (down 0.5 cent)

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