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

Last week’s trading sessions were defined by Friday’s big drop in Class III pricing. The Jan 2012 Class III settled Friday at $17.00, just a nine-cent slide in price from last Friday’s close, but was 40 cents off its intraday high. Open interest climbed 264 contracts on a daily volume of 1251 contracts. The Q1 pack dropped 11 cents over the course of the week to settle Friday at $17.05. This was a 36-cent drop from the high established reached within Thursday’s session.  The drop in Friday’s prices was predicated on the trading in the spot market. 

Last week also saw the release of the Milk Production report. The report was slightly bullish, showing the first decline in cow numbers, 1,000 total, since September 2010. Twenty-three state production actually increased 2.2% year over year to 14.74 billion pounds.

Though both the blocks and barrels ended Friday unchanged, the spike in volume traded sparked selling the futures markets. Blocks ended the week unchanged at 1.5625 on 11 total trades, 8 of which came Friday. Barrels gained .0225 on the week with 11 total trades, six of which occurred in Friday’s session. The Jan 2012 cash settled cheese futures lost .0320 Friday to close out Friday at 1.6090, while losing .0090 on the week. Friday saw 50 contracts change hands with an increase in open interest of 21 contracts. The Q1 pack dropped .0120 from last Friday’s settlement of 1.6263, to close out at 1.6143. This drop in pricing came in spite of a slightly bullish Cold Storage report. 

Holiday demand helped to drive cheese inventories lower. North American cheese dropped 6.2% year over year, and 4.7% from last month’s levels. The near 28.8 million pound drawdown was near 20 million pounds greater than the 5 year average. U.S. total cheese inventories fell 5.4% year over year and 4.2% from last month.  

Corn prices finished higher last week, along with the majority of the grain markets, fully engaged with the threat of drought in South America, and the serious impact that would have on crop yields and the entire crop cycle. The nerves of the traders pushed the price up and up, even though the lack of holiday volume seemed to keep the price on Friday mild to mixed, finishing up 2 cents in March to 6.14 ½   and between 1 and 1 ¾ cents higher in May at 6.28 and July at 6.34.  This was mild for a week where the weather reined king. Look for the majority of the South American continent to continue and hope for rain, while weather reports have most of the continent being dry for the week with Argentina beginning to get some relief.  International economic pressure continues to form the international trade, and it should be fairly low volumes traded into the next week before the New Year, with many on vacation for the whole week, the international news should be limited. This drop in liquidity can often provide for some abrupt price moves, so be careful.

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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