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

Sad moments come when we least expect them. On Monday the dairy industry lost a proud voice. We mourn the passing of a true gentleman, Doug Maddox of California. He impacted us all in the dairy industry as he was very active in pushing new legislation sculpting the dairy landscape. Our sympathies go out to his family in this unexpected time of mourning.

Tuesday was marked by another moderate trading session, with futures closing modestly higher on 1,278 traded contracts. The USDA Milk Production report was likely a non-event for the trade yesterday. Instead, the leading factor for Class III support was another firm trade for the dry whey market. Still, Class III futures closed off their highs showing us some level of technical headwind and a vulnerability to trade the downside yesterday.  

Additionally, commercial buy interest continues to be a factor. With a Class III/Dry Whey equivalent Cheese price at approximately $1.66 for calendar 2012, commercial buyers are happy to pay a premium to spot to get coverage — for now. It’s important to remember that their decisions are not based on some answer key to the test, but rather strategies using the futures/options market to remove price volatility for 2012.

New Zealand milk production was up 11% in October and up 10.5% in the current season vs. year ago levels from June through October.

An interesting day for the grains, as they managed to close higher across the board with corn up 6 cents, soybeans up 7.5, and wheat up 8. The rally certainly was not as large as one may expect  given the continued stress in South America, crude oil up 3.00+, the Dollar down 500+, and equities up very strongly. The technical picture now looks friendly across the board and the market may be resigned to a mostly higher move into the Jan. 12 USDA S & D and stocks report.

We look for corn to open 5 to 7 lower and for beans to open 10 to 13 lower.

Daily CME spot market prices:

Block cheese: $1.5625 (unchanged)

Barrel cheese $1.545 (up 1 cent)

Butter: $1.595 (down 0.75 cent)  

Grade A NFDM: $1.45 (unchanged)

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