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

In what could be a calm before more stormy volatility, Class III futures consolidated in a tight trading range for the bulk of the day on lighter volume. After trading lower early in the day, multiple spot barrel bids at unchanged and an unfilled block bid help to bolster futures prices by midday, but the market lacked conviction to the upside. By the closing bell, only 714 contracts traded hands in a mixed fashion as futures prices fluctuate between short-term areas of support and resistance amid a well-bid cheese market and weaker dry whey prices.

While there is appetite for fresh cheese at current levels, it does not appear to us that there is any sense of urgency on the buy side. Unless that changes as we roll the calendar into February, we expect that a cheese market rally of any significance will likely not happen even from these levels. With milk production growing — not slowing — and inventories of fresh cheese plentiful, this looks to us to be more of a $1.40 market than a $1.60 market as we get ready to close out the month.

Prices have declined some in the past week, but there are still reasonable strategies to employ for your dairy. Producers who have not yet protected their price or marketed milk ought to be getting some coverage for at least the February to June time period now. Please call us to discuss.

Along with the slowdown in Class III has come a slowdown in cheese futures, which also finished mixed Thursday on a light 36 contracts trading hands. The brow-beating the Class IV market has taken over the past few trading sessions slowed yesterday as prices finished unchanged across the board on no volume.

The decline of cash-butter futures seems to be running out of steam to the downside.  Heavily oversold technical conditions ought to lead to a short-lived snap back on futures prices so long as spot finds willing buyers or bidders again today.  But the larger trend of butter prices is lower — not higher — and we expect both spot and futures prices to move lower as we roll into February with any bounce to be short term in nature. We do look for a short-term bounce in futures, however, perhaps starting today to end out the week.

Corn futures were poised for a sharp rally early Thursday as the US dollar weakened and traders looked toward stronger-than-expect weekly export sales. But much like milk, the strength early in the day faded as the dry South American weather has turned the corner and is forecasted to remain wet early next week. In any event, the rally was a weak one today and it underscores that fact that price strength has largely been borne of dry South American weather of late which has exhausted and fund buying which is also looking exhausted.  The market looks to be a flash-in- the-pan type of rally started by dry South American weather and looking as though it may come to an end after strong fund buying over the past few sessions.

We look for corn to open 5 to 7 cents higher and for beans to open mixed -1 to +1.

Daily CME spot market prices:

Block cheese: $1.5050 (unchanged)

Barrel cheese $1.485 (unchanged)

Butter: $1.555 (down 0.5 cent)

Grade A NFDM: $1.45 (unchanged)

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