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

Many of the general markets saw large overnight moves Monday night, only to reverse course and moderate those gains (equities, softs, grains) and in some cases even reverse direction on the day (U.S. dollar, crude oil, copper).

The turnaround in the U.S. dollar was likely a major factor in turning the outside markets, but the dairy market opened lower Tuesday and never got a chance to turn around as the dollar weighed in and the spot session failed to ignite any sizeable rebound.

There has been a good amount of talk about the premium Class III futures have been holding above the spot market valuations, but the lack of follow-through after last week’s tick higher on spot prices has led to the erosion of that premium early this week. The trend remains to the downside, though it does appear we have found firm support for the spot market. And if the spot market can bounce, we look for perhaps one more opportunity for producers to purchase puts before the trend likely continues lower. The GDT auction and the dairy products report may provide some fundamental support later today, though if each is in line with expectations that would be unlikely.

Another very volatile day for the grains intraday on Tuesday with double-digit gains in corn at the open only to see the dollar reverse course and for prices to move into the red for a short time, but ultimately the bullish wheat market pulled corn to a 7.25-cent higher close at 639.

It seems grain buyers just can’t get the break they would like to see in order to add positions, and overnight corn was testing the 645 high from last week. Perhaps the market will break through the 100-day MA and retest Jan’s highs just above 660, but the technical picture looks more neutral in the short term and we will be closely watching weekly export numbers tomorrow to see if the price gains are affecting export demand. It is still our feeling, without the increased export demand, that despite the supply issues and further worries that grains are likely to moderate their gains in the coming weeks.

We look for corn to open 7 to 9 cents higher and for beans to open 7 to 8 higher.

 Daily CME spot market prices:

Block cheese: $1.51 (unchanged)

Barrel cheese $1.495 (unchanged)

Butter: $1.505 (unchanged)

Grade A NFDM: $1.38 (unchanged)

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