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

In what was a very volatile intraday trading session, Class III finished mostly lower yesterday, settling anywhere from +1 to -13 on the day. With the cash market basically flat, Class III futures gave up most of the gains we saw in the early session and traded to sharp losses of 20+ cents in a number of months from April through August only to rebound, still closing mostly lower, into the close.

The market as we currently see it can best be described as bearish with bullish concerns. Give the market a reason to rally and it will ― no matter how big or small that reason is, as we have seen of late.

We have been getting more mixed reports regarding short-term demand with some talk of an up-tick in retail sales; however, we’d still say that the majority of participants remain bearish and see this as more of a short-term pop likely to fade particularly if the Class IV markets should fall.

U.S. dairy cow slaughter for the week of Jan 26th came in at 64.7 thousand head ― up a sharp 6.7 percent year to date vs. 2012, likely adding to the long-term bullish concerns.

Spot session results:

Block cheese: $1.6475 (unchanged)

Barrel cheese $1.555 (up 0.5 cent)

Grade A NFDM: $1.52 (unchanged)

Butter: $1.555 (unchanged)

In the grain complex, Mar Corn futures settled down 11 ¾ cents, while beans only saw a slight decline down ¾ of a cent on the day. South American weather issues continue to boost demand for U.S. soybeans with export sales strong this week at 61.2 million bushels vs. estimates for 29.4 to 47.8. Corn and wheat exports continue to disappoint at 6.9 million bushels and 11.1 million bushels, respectively ― each near the low end of the expected range. CONAB the Brazilian USDA released their estimates for corn and soybean production this year and they were a bearish surprise particularly on corn which came in at 76 MMT vs. 72.2 in Jan, which really dragged on the corn market throughout the day. On soybeans, their estimate is for 83.4 MMT ― up slightly from their previous 82.7. It continues to be a battle between bullish soybean info and bearish grain info.

The drought in the U.S. continues to persist, covering 92 percent of the Central and Northern Plains and 56 percent of the Southern Plains. While there is a report being released later today, this report typically shows very few changes from USDA and thus keeping an eye on weekend weather in Argentina is likely to be at the forefront of the collective market’s mind today.

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