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

Class III futures opened this week as they closed last with strong overnight gains, but the luster of that rally started to fade early in the day and the cash market took nearly all the shine. Prices finished the day 1 to 16 lower from Feb through June, while deferred contracts settled higher by 4 to 9 cents through the end of 2013 with good interest in those contracts with many of those months trading 25+ contracts. Total volume was 1,233 on the day ― maybe not quite as strong as hoped given the overnight volume, but showing increasing activity none the less.

The spot barrel market, despite last week’s effort, seems unable to climb out of its hole, closing a penny lower on 3 trades, while the blocks opened and closed silently, pushing the spread back out to 11.25 cents. While buyers continue to have interest and step up to buy product, it still seems there is just too much physical inventory out there to allow for any sustainable rally.

The Dairy Products Report released post settlement yesterday certainly sides with the physical market bearishness and though we rarely see reactions from this report, we’d not be surprised to see futures price pressure with inventories growing so sharply.  

Spot session results:

Block cheese: $1.645 (unchanged)

Barrel cheese $1.5325 (down 1 cent)

Grade A NFDM: $1.52 (unchanged)

Butter: $1.555 (unchanged)

Grains continue to trade mixed with soybeans pulling slightly to the upside while wheat prices continue to trade softly. March beans managed to close 14.5 cents higher yesterday at 1488.75 as the market continues to have concern over South American weather and export sales into China were announced. The bean market made its high at 1498, just a few cents shy of the $15.00 level and within range to make a run over that mark in the next few days ahead of the Feb USDA report Friday morning. Corn was dragged in two directions as wheat closed down 2 cents at 763 and March corn followed dropping by 1.75 cents to 734.25. Basis is now starting to soften on corn as the price relationship to wheat is encouraging increased wheat feeding. With the report coming Friday, we will be keeping an eye on puts or put spreads to offer downside participation against already priced feed.

We look for corn to open 2 to 4 cents lower and beans steady to 4 higher.

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