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

The Class III futures market ended the week of trade with just over 1,000 contracts trading hands. The March through July contracts produced gains ranging from 10 to 31 cents by settlement, while the remaining 2013 futures contracts were less volatile, settling between 5 lower and 3 cents higher. The 2013 second-quarter futures pack gained 26 cents Friday to close out at the price of $17.86, though just 2 cents higher than the week prior.

The question on many minds is whether or not the rally that ushered in the typically quiet demand time of February is sustainable. Currently, we still hear of plenty of cheddar availability, which we expect to be an at least short-term headwind to further Class III and cheese futures market gains. Since, however, cheese demand has been largely quiet since the beginning of November and since there ought to be a pipeline refill as we approach the month of March, we do expect waning spot prices to find continued buy side interest near current levels. This says nothing of what appear to be ample, but leveling-off, milk supplies.

Spot session results:

Block cheese: $1.645 (unchanged)

Barrel cheese $1.5425 (up 1 cent)

Grade A NFDM: $1.52 (unchanged)

Butter: $1.555 (unchanged)

The grain complex finished Friday’s trade posting mixed results as market participants continue to evaluate weather-related production issues both here and abroad. The Mar13 corn contract dropped 4 ½ cents lower for the day, settling at $7.36, while adding a total of 15 ¼ cents over the week prior. The Mar13 soybean contract posted gains of 5 ¾ cents for the day, with a weekly total gain of 33 ¼ cents, to settle at the price of $14.74 ¼.   

The recent rains/snowfall in the Midwest has allowed the Mississippi River water levels to rise significantly, though the drought across most growing areas remains a real concern. Chicago is getting hit with a sizeable snowstorm Sunday night into Monday and any little bit helps at this point. The corn market is attempting to balance weak exports and low ethanol production rates against high livestock feed demands.  Export demand for our soybeans still remains high, while traders consider the impacts of a continually dry Argentina, a hot and dry Southern Brazil, and a soaked Northern Brazil on crop production levels. 

We look for corn to open 1 to 4 cents higher and beans to open 8 to 13 higher.

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