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

Class III futures fell again, trading lower on a total of 1,438 contracts. The dairy complex as a whole was quite active, as most of the markets posted higher-than-average trading volumes in a day that saw losses across the board. For Class III futures, once again the lower prices led to strong volume and another strong increase in open interest as it climbed by 408 contracts. Price declines for 2012 ranged from 4 to 26 lower, as greater production weighs on the market. Both producer and speculative selling has increased over the past two days across the board, whereas end-users seem to be more focused on the deferred contracts. 

The monthly milk prices for March were released, with Class III falling 34 cents from last month to $15.72.  The Class IV dropped 57 cents to $15.35. 

The week will end with a few reports as milk production comes out this afternoon at 2 p.m., while cold storage will be released after the close tomorrow. Given the sharp declines seen on futures over the past few sessions, and the lack of a decline in the spot cheese market, it wouldn’t come as a complete surprise to see a futures rebound if spot can’t confirm the weakness.        

The grain selloff resumed, as continuing favorable weather conditions allow for the rapid planting rate to continue. Crop prospects are looking good, albeit early in the growing season, leading to speculative pressure on all the grain markets. The May corn fell 15 cents on the day to $6.01 ¾, while the December contract dropped a penny to $5.28 ¾. Wheat slipped only 4 ¾ cents in May to $6.10 ¾, while the May beans lost 18 cents to $14.07 ¾. We expect the selling trend to continue in the near term without any weather risk on the horizon. 

Overnight, there wasn’t much in the way of fresh news that we were seeing reported, but grain prices were rebounding sharply up double digits across the board. There was talk of a corn sale into Korea and perhaps the rumors of Chinese buying are being confirmed.  

We look for corn prices to open 12 to 14 cents higher and for soybeans to open 12 to 15 higher.

Daily CME spot market prices:

Block cheese: $1.50 (up 1 cent)

Barrel cheese $1.46 (unchanged)

Butter: $1.4125 (down 1.25 cents)  

Grade A NFDM: $1.1775 (unchanged)

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