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

Futures were under pressure across the board early in the session, and the declines were extended when the spot session saw further declines as barrels fell by 4.5 cents and blocks dropped 1.25. We really are forced to call the declines moderate in terms of what we think many would have expected, given the sharp spot barrel decline that so many were looking to for support. Volume reached 2,231 contracts on the day as buyers were willing to catch a falling market. Volume was over 1,000 trades between Oct and Nov alone, clearing 1,400 when including December.

Next year’s contracts are where we’d expect the new hedge orders, but it appears that there is much going in 2011 that follows a similar buying pattern. Speculators are thinking the bottom is near and commercial buyer appetite remains a key feature, so while today may be a day of price consolidations, a bounce tomorrow or Friday ought to be expected. But the trend is lower and bullish news to change that is in short supply today, so 2011 futures price rallies from current levels are likely to be fleeting. 

A new single day record volume in cash settled cheese contracts easily surpassing the previous high of 247 contracts — nearly doubling that volume with 403 contracts traded. Prices were under pressure along with the Class III market and over 150 trades were seen in November alone and 130 traded in December as well. Prices were steady to -0.030 and, as with Class III, we expect continued pressure. 

Grain prices were sharply higher overnight, only to come under continued pressure as the day wore on. Yield results continue to come in mixed much lower than year ago in some areas, while stronger than expected across much of the western Corn Belt. Closing prices saw corn up 4.25 cents at 652.25, beans up 3.25 at 1263 and wheat leading the gains up 10 cents at 658.25. We termed these gains as disappointing based on crude oil being up over $4 and the Dow closing up 146.

Friday will bring the Q3 ending stocks report, and these reports have provided severe volatility with trade missing the USDA estimate by very surprising amounts over the past year. We would look forward to this report, believing that most of the risk should lie to the downside with lower than expected feed use due to the tightness of the corn wheat spread leading to more wheat feeding. But, as we said, this is a nearly impossible report to estimate. Look for trade estimates in tomorrow’s report.

We look for corn to open 4 to 6 cents lower and beans to open 4 to 6 lower.

Daily CME spot market prices:

Block cheese: $1.7175 (up 1.25 cents)

Barrel cheese $1.645 (down 4.5 cents)

Butter: $1.76 (unchanged)  

Grade A NFDM: $1.490 (unchanged)

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