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

Class III futures continued the pattern established Monday with a mixed trade showing mostly single-digit gains or losses on moderate to light volume yesterday. Interestingly, 2013 futures contracts turned lower after trading mostly higher on Monday, with volume being far stronger in those contracts than it had been on Monday. It looks as though end-users are happy to buy any breaks on Class III for now, and it’s difficult to disagree with that stance given the continued reports of bankruptcies for dairy farmers out West.

The spot market continues to see good interest from both buyers and sellers, as the barrels traded down ¼ cent yesterday with two trades, but we’ve heard some reports that milk availability is already slowing into cheese plants with the recent run up in Class IV prices. That doesn’t seem to be causing any supply issues in the short-term for buyers, but it’s a good reason to keep some premium built into the Class III futures vs. spot.

Grain futures continued their mixed trade on Tuesday, with both corn and soybeans trading either side of unchanged but once again closing well off the highs and in corn’s case closing lower. Corn settled below the $8.00 mark for the first time since Aug. 14in December at 795.5.

On the other hand, USDA announced 110k mt of soybean sales into China for next year. Soybeans are now over $20/bu. in China but there is yet to be any noticeable demand slowdown. The export sale led to beans trading higher though most of the day and closing up 3.5 cents at 1722.25. Fund/Spec length does seem to be a bit vulnerable to a pull back, and volatilities have been softening all week which may be offering up a purchasing opportunity. End-users will likely be looking to make purchases on pullbacks and taking advantage of the softening volatility to buy options. Call to discuss your specific situation.

We look for corn to open 7 to 10 cents higher and for beans to open 10 to 15 higher.

Daily CME spot market prices:

Block cheese: $1.8525 (unchanged)

Barrel cheese $1.80 (down 0.25 cent)

Butter: $1.82 (up 1.75 cent)  

Grade A NFDM: $1.665 (unchanged)

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