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

Spot cheese rallied on Wednesday — both blocks and barrels picked up 3 cents, leaving the spread inverted by two cents. It seems to all be attributable to seasonal and holiday buying. A short-term tautness on fresh cheese remains a buoyant factor for the spot market as the price dips continue to be bought. This is perhaps augmented by anecdotal reports of cheese plants being sold out through November. Short-term concern over New Zealand pipelines are not impacting the U.S. cheese market now and are unlikely to impact it at all. Look for barrels to continue leading the strength of the spot cheese market for the next several weeks before the decline we anticipate and clearly the futures market is anticipating as well. In the meantime, expect a boost to 2012 futures prices in the next few days — the question is more aptly: how long will it last?

From a trading perspective, “up and down” is a simple way of looking at the remaining 2011 contracts. One day we lose 20 cents, the next day we gain 30. Back and forth we go. The danger here is that the futures market is like a restless teenager letting you gently fall asleep before rifling through your wallet and sneaking out to the party in the big city. We’re not sure exactly how prices will play out, but we have a green light on selling the rallies for Class III through December. And eventually into 2012.  Call to discuss.

Cheese futures traded 190 yesterday (30 were ex-pit) as volume remains good there. Prices in 2012 months traded independent of Class III movement and exacerbated the sentiment noted above regarding a drop off in price around the corner. Only November was higher, while the 2012 months were lower, while in Class III they simply didn’t rally as much to the upside as 2011 months.

Corn plunged alongside crude weakness yesterday and rebounded overnight- same can be said for the whole grain complex. It’s choppy, real choppy. The famer sell side is not strong in presence, seasonal trends seem to be absent and outside market influences are strong and ambivalent right now. Look for more grinding week over week for possibly a few weeks. Overnight, the impact was from the European news and rollover into all markets, pushing grains up throughout the evening alongside crude and equities on a plunging U.S. dollar.

What a difference a year makes:  Russia exported a record 3.8 million tons of grain in September, including a record 3.3 million tons of wheat; total exports are seen declining to 3.4 MMT in Oct.

We look for corn to open 9 to 12 cents higher and beans to open 22 to 27 higher.

Daily CME spot market prices:

Block cheese: $1.72 (up 3 cents)

Barrel cheese $1.74 (up 3 cents)

Butter: $1.87 (unchanged)  

Grade A NFDM: $1.43 (down 6 cents)

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