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

Volume increased a bit yesterday, moving above the 1,000-contract mark with 1,283 in total. Price attempted to charge higher early in the session, with January climbing as much as 20 cents pre-spot but pulling back during the spot session along with the 1st quarter months which all pushed to double-digit gains at one point. Following the spot session, which saw a lone barrel trade at unchanged, the market fell relatively quiet with most months moving from steady to 10 higher through settlement. January through May months closed higher by 6 to 11 cents. Some good activity also came following the settlement as many of the first half months traded to new highs just before the 4 p.m. electronic close. We continue to expect a choppy sideways market with perhaps some slight spot market upside in the coming days.  But futures are losing their upside momentum and, without some fresh upside news from spot or elsewhere, the futures market will likely have to move lower today or tomorrow.

Longer-term forecasts for cheese largely fall somewhere in the mid-$1.60’s for 2012. While good arguments can be made for this, this figure is conveniently represented today by the 2012 futures forward curve. While commodities in general — and dairy in particular — may be set up for a year of less volatility, we don’t think so. Either way, we won’t know for another year. So, we suggest that some profitable level be attained by the risk-management tools available to you.  Call us to discuss anytime.

Grain prices continued to trade mixed with corn leading the way yesterday, nearly gaining double digits and closing up 9.25 cents at 642.5. Soybeans traded slightly lower, losing 1.5 cents to 1208 on the heels of the large gains seen Tuesday. Argentine maps turned a bit wetter for the 10- to 15-day period, but with another seven to 10 days of strong heat and only very light rains forecast it wasn’t enough to ease the upward pressure on the market. Wheat continues to be a follower closing up 6.5 cents at 651.25. It will be very interesting to see how the year comes to a close, we’d expect with the lighter volumes seen so far this week profit-taking may overwhelm the market today and tomorrow before a reload from the funds to start 2012.  Despite the feeling that we may see some late week selling to close out the year, yesterday’s performance was of particular note due to the strength seen in the Dollar, as it closed up some 800 points, and the outside markets were very soft with crude down over $2.00 and equities closing 140 points lower.

Corn export inspections this week were not surprising but still 10 million bushels larger than what is necessary to meet the USDA forecast. Corn shipments are down approximately 6% from last year while the USDA is pegging exports to be down 13%. Traders were impressed that China showed up buying 7.7 million bushels. Again, this is not a big number but interesting since they had such a big corn crop and have talked down their need to buy corn.

We look for corn to open steady and for beans to open 4 to 5 cents lower.

Daily CME spot market prices:

Block cheese: $1.5625 (unchanged)

Barrel cheese $1.56 (unchanged)

Butter: $1.595 (unchanged)  

Grade A NFDM: $1.45 (unchanged)

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