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

It appeared as if the parachute was pulled yesterday to slow Tuesday’s Class III free-fall. Sellers neglected CME spot blocks, but continued to offer barrels 4.5 cents lower without any takers. Loads that were unable to be sold last week in the open market are likely clearing off the exchange in the low $1.90’s. Similar support prices are expected to be found in coming CME spot sessions. 

Class III volume was heavy yesterday both above and below unchanged, with over 1,000 contracts trading hands. Both November & December Class III closed at $20.12 per cwt., while the 2013 contracts finished the day at an $18.68 yearly average. Over the past month, many speculative traders had been offsetting long position risk in fourth-quarter contracts by shorting positions in 2013.  As those particular trades are being unwound, support is coming into deferred contracts. This was likely how we were able to attain the 12 cents higher close in January yesterday. End-users will likely continue to execute 2013 budgets, keeping deferred contracts supported even in the face of wild front month volatility.

November 2012 through April 2013 whey futures helped to support the Class III complex by finishing Wednesday’s session steady to 2 cents per pound firmer. NDPSR Whey prices for week ending 10/12 averaged 61.5 cents, up ½ cent vs. week prior. Solid participation in both Class III and outright cheese futures have tightened the distance between bids and offers in whey futures. Bidders appear comfortable in the upper-50-cent range while offers are now standing near 60 cents per pound. 2013 whey futures currently average 56.933 cents per pound.  Considering each penny in whey movement is equivalent to 6 pennies in the Class III complex, historically high whey prices are keeping Class III prices inflated. Over the last 12 years, January Class III has averaged $13.04 per cwt., February has averaged $12.90, and March has averaged $13.22. First quarter Class III futures finished Wednesdays session at $19.33 per cwt.

In the grain complex, December corn finished yesterday’s session 7.25 cents firmer at $7.4550 per bushel, while November soybeans finished +15.5 cents at $15.0925 per bushel.

Informa will estimate new crop acreage for corn soy and wheat tomorrow morning, which may be a bearish influence as 12/13 tables will project sharply higher carry-outs with a return to normal yield.

We look for corn to open 3 to 5 cents higher and beans to open 15 to 20 higher.

Block cheese: $2.01 (unchanged)

Barrel cheese $1.9275 (down 4.25 cents)

Butter: $1.875 (unchanged) 

Grade A NFDM: $1.56 (down 4 cents)

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