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

The spot cheese market caught fire again yesterday climbing by over 4 cents in each the block and the barrel, pushing each up to and above the $2 mark and that’s right where the blocks stopped. While futures were stronger on the day closing up 22 cents in December and 20 cents in January, other months were up just 1 to 8 cents through August 2012, a lackluster close relative to the recent strength in spot. 

Many in the industry have stated that the market was likely to see $2 but would struggle beyond that level. If today’s futures activity was any indication of what the spot session will do in the coming days, we may have set the highs in the market yesterday. December traded all the way to 19.78 before closing 24 cents off that high (and was trading lower overnight). For confirmation, a barrel must be offered, because until then it appears the buyers will continue to ratchet spot prices higher and futures ought to reluctantly follow from these levels.  Still, we don’t expect prices north of $2.10.  Furthermore, we don’t expect prices north of $2 for more than a week.  

The spread between U.S. and international prices are staggering. GDT market strength remains at a sharp discount to our current prices, but it is perhaps a sign of more sustainable international demand now. Convergence will occur but it seems more likely that this will be a combination of stronger New Zealand prices and softer U.S. prices rather than simply a sharply lower U.S. market.  

Class IV volume was at 12 contracts yesterday with all of the trading from December through March each of those months settled higher by 6 to 35 cents as strength was garnered from the DMN price gains seen below which supported both butter and NFDM. 

Cash settled cheese futures volume was a far cry from Monday’s heavy volume as just 27 total trades were seen and prices were higher by 0.005 to 0.019 from November through February. From March 2012 on prices were unchanged. 

We look for milk to open mixed.

A wowing turn around day for the grains yesterday as prices on both corn and wheat were off to a weaker open before catching a tailwind late morning and riding it to double digit gains on the day. Market chatter centered around some additional Chinese soybean buying, a technical price recovery, strong ethanol margins with higher crude oil and strong basis values as producers seem likely to hold through at least the end of the current calendar year. The rally was seen despite a mostly indifferent equities market and a slightly higher U.S. dollar despite the lack of bearish news from the European Union today.

It seems prices will continue to be range bound in the short term finding support near the 6.30 level on December corn and hitting resistance around 6.60. While this is a far cry from the volatility that has been seen for most of the year, there seems to be very little at this point to move the needle. Our feeling remains that if a breakout is to be seen it will likely come to the downside as global wheat production weighs upon strong U.S. corn prices.   

Overnight the market was seeing sizeable declines as equities were nearly double digits lower, corn was off 4 to 6 cents, beans down 8 to 12 and wheat off 2 to 4. 

We look for corn to open 5 to 7 lower, beans to open 8 to 11 lower, meal to open 2 to 3 lower, and wheat to open 4 to 6 cents lower this morning.

Daily CME spot market prices:

Block cheese $2 (up 4 cents)

Barrel cheese: $2.0500 (up 4 1/4)

Butter:  $1.74 (unchanged)  

Grade A NFDM: $1.4400 (up 1/4)

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