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

Class III futures continued to decline yesterday, despite mostly supportive outside markets. Futures traded mostly lower ahead of the spot session and looked as though they may experience another collapse similar to the drop seen on Friday when the spot cheese market was trading lower. Barrels fell to 1.5375 and futures were moving sharply lower prior to the two trades occurring.

Once the market felt more comfortable that a buyer had been found, futures moderated their losses. Most nearby futures contracts still closed off double digits as volume was moderate with 1,484 contracts traded. February through June 2012 closed lower by 9 to 11 cents, while futures continue to be firm in the latter half of 2012, closing from -2 to +2. There seems to be very little on the horizon to slow the futures declines, though we would expect to see continued buy side interest on barrels as the price nears the $1.50 mark.

The grain market reversed course from late last week as the U.S. dollar declined and South American dryness once again raises concerns with forecasts continuing to be mostly drier. While we remain longer term bearish, we think coverage should be added on a good percentage of needs for the next few months as the next big break will likely come as a result of planting intentions and/or good spring weather which is some time off. In the meantime, South American issues will have an opportunity to make an impact on the market.

Grains got an early start to turnaround Tuesday trading lower across the board in overnight activity. We look for corn to open 4 to 6 lower and for beans to open 8 to 12 lower.

Daily CME spot market prices:

Block cheese: $1.595 (unchanged)

Barrel cheese $1.5375 (down)

Butter: $1.595 (down 1.75 cents)  

Grade A NFDM: $1.45 (unchanged)

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