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

Futures volume picked up a bit more yesterday as barrels traded 7 times on the CME spot market in bullish fashion, tacking on 5 ½ cents. The U.S. Dairy Export Council shared some bullish 2013 insights with the world: http://www.agriview.com/news/dairy/u-s-dairy-export-council-predicts-undersupply-of-milk-in/article_78a057ba-5050-11e2-b061-001a4bcf887a.html

And while USDEC is bullish for 2013, the barrel move wasn’t enough to muster serious bullish pricing change on the Class III futures board into the close. Prices surged as much as 37 cents intraday (Feb13), but failed to hold onto those gains, closing only 4 higher in Jan and 1 higher in Feb while 1 to 10 lower March13-Sep13.

There is a lot of talk about the “fiscal cliff,” but the dairy cliff is quickly approaching as well. And, if or as we suspect back here in our office, when the new farm bill is signed or current farm bill extended and the “parity pricing” issue side-stepped, we are likely to see some premium pulled out of the Class III and cheese futures in a hurry. We remain in bear spreads, believing 2013 will see a strong resurgence of price but not expecting it to materialize all too quickly; dairy end-users, we feel, should be very proactive to close 2012 and even more so to start 2013.

The grain markets had another light trading session ― and one in which they failed to muster any bullishness. They simply fell slowly and precipitously. The Chicago wheat market stood out yesterday as it managed to surge very late session from double-digits lower to only 2 ¼ lower to settle March at 772 1/4. The bean market managed an early spike up but couldn’t hold on and languished, ultimately finishing about a nickel lower. Corn simply didn’t do much yesterday; March saw a 6 ¼ cent range closing a modest 1 ¾ cents lower to 691 ½.

Look for position “squaring” to continue the rest of the year and, of course, the “fiscal cliff” focus will matter greatly here, especially as it pertains to capital gains taxes… for now funds are gently lightening.

Block cheese: $1.74 (unchanged)

Barrel cheese $1.71 (up 5.5 cents)

Grade A NFDM: $1.5575 (unchanged)

Butter: $1.4975 (unchanged)

These data and comments are provided for information purposes only and are not intended to be used for specific trading strategies. Commodity trading is risky and FCStone Group, Inc., INTL FCStone Inc., and their affiliates assume no liability for the use of any information contained herein. Although all information is believed to be reliable, we cannot guarantee its accuracy and completeness. Past financial results are not necessarily indicative of future performance. Any examples given are strictly hypothetical and no representation is being made that any person will or is likely to achieve profits or losses similar to those examples. References to and discussions of exchange traded products are made solely on behalf of FCStone, LLC. References to and discussions of OTC products are made solely on behalf of INTL Hanley, LLC, and OTC products are only available to eligible counterparties.