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

We certainly can’t say the Class III market recovered as expected yesterday because little of the price movement over the past three sessions has been expected, but the market did seem overdone to the downside Monday. I’m sure we, like many other market participants, were again surprised yesterday this time by the size of the price gains that was seen on Class III futures. On the day, over 1,500 trades occurred, coming up just shy of Monday’s volume on the large decline.

Interestingly, a pattern has been emerging in regards to open interest on the moves, as it seems most of the volume on down days has coming on sizeable growth in OI, while rallies are seemingly being driven more by short covering than new contracting. As with the sizeable losses that were seen, yesterday’s big rally came with little fresh news and mostly as the result of the spot session. All it took was an uncovered bid in the blocks and steady prices on the day and we were off to the races. As was the case to the downside, dry whey prices moved in unison with Class III and supported the extremely sizable price movement.

On the heels of such large swings, we expect the market to be a bit calmer in the coming sessions. We believed that prices on the spot market would hold between 1.45 and 1.50, and after yesterday’s lack of a price decline that seems more likely to be the case for the short term. However, if a breakout is to come, our belief remains that it will be to the downside and the market will likely now be susceptible to such a move over the next few sessions. We are wary of a price break once the spot market rolls over into pricing April as often times those key rollover periods create more aggressive buying/selling on the spot session.  

Yesterday’s grain session was a story of strong beans gaining against weak corn and wheat prices. Outside markets were the big influence on the corn and wheat markets as the U.S. dollar rallied and wheat traders begin to get concerned about harvest pressure along with beneficial rains for the southwest U.S. Soybeans, however, shook off the outside markets focused on a tight carryout and reports of Brazilian soy production below even the 68 mmt estimated by Informa last week.

On the day, beans closed up 10.25 cents at 1335.25, meal gained 7.7 to 365.9, while corn was down 6.75 at 654 while wheat ended down 14.25 at 657.75. We look for a mixed trade today and then for the market to look toward export sales and ethanol production tomorrow before the USDA report Friday.

The director of China’s State Grain Administration said yesterday that the country will not need to import “large volumes” of corn this year, as they’ve stockpiled enough corn, in addition to wheat and rice.  We shall see.

Look for corn to open mixed and beans to open 1 to 3 cents higher.  

Daily CME spot market prices:

Block cheese $1.46 (unchanged)

Barrel cheese $1.4575 (unchanged)

Butter:  $1.45 (unchanged)  

Grade A NFDM: $1.2675 (down 1 cent)

These data and comments are provided for information purposes only and are not intended to be used for specific trading strategies. Commodity trading is risky and FCStone Group, Inc., International Assets Holding Corporation, and their affiliates assume no liability for the use of any information contained herein. Although all information is believed to be reliable, we cannot guarantee its accuracy and completeness. Past financial results are not necessarily indicative of future performance. Any examples given are strictly hypothetical and no representation is being made that any person will or is likely to achieve profits or losses similar to those examples. References to and discussions of exchange traded products are made solely on behalf of FCStone, LLC. References to and discussions of OTC products are made solely on behalf of INTL Hanley, LLC, and OTC products are only available to eligible counterparties.