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

The bounce-back in Class III futures continued yesterday as a move up in the spot market prices supported sizeable futures gains. Blocks closed higher by 1 ½ cents to 1.8550, while barrels moved up 1 ¼ cent to 1.8125 on volume of 3 and 4 trades, respectively. The gains there, along with an increase in butter prices, saw Class III futures settle higher by 5 to 25 cents from Sept all the way through June 2013. The fourth quarter average gained 21 cents on the day to close at 19.86, with both Nov and Dec climbing back above the $20 mark.

The $19.86 close yesterday represents a 61-cent increase since Monday’s close at $19.25. While price increases on futures were to be expected given the spot increase, the size of the advances caught our eye as both the block and barrel prices both settled off of their daily highs at $1.87 block and $1.82 barrel. Clearly, there is still cheese available and, with whey prices mixed, Class III gains slightly outpaced the increase on the spot market.

The domestic cheese dilemma at the moment is two-fold: Mozz exports are down, cheddar imports are ramping up; yet CME spot is firm mostly because of the futures premiums in the deferreds, allowing a natural arbitrage opportunity which we have noted for many times over last couple months at it has persisted.

The grain markets took a bit of a breather yesterday as the market absorbed the Fed news and continued to digest the Sept. USDA report. On the day, corn closed up 4.25 cents at 773.75, soybeans up 1.5 at 1747.25, and wheat up 12 at 902. The Fed announcement seems likely to perpetuate the weakness in the U.S. dollar which is generally bullish export demand at a time when we need to cut demand across the board. Short-term, that may not have a visible impact, but it will certainly mean higher prices are needed to keep that demand in check if the U.S. dollar continues to decline. Export sales for this week were mixed with 16.9 million bushels of corn sales reported vs. estimates for 7.9 to 15.7, while soybean exports continue to be strong, justifying the price increase following Wednesday’s report coming in at 23.1 million bushels vs. estimates for 18.4 to 20.9 and wheat exports at 14.0 vs. estimates for 11.0 to 22.0. Expect the markets to continue to chop around in the near term as more information is discovered about yields, and then the market will likely turn its eye toward demand and South American planting weather.

We look for corn to open 6 to 8 cents higher and soybeans 11 to 14 higher.

Daily CME spot market prices:

Block cheese: $1.855 (up 1.5 cent)

Barrel cheese $1.8125 (up 1.25 cent)

Butter: $1.845 (up 0.5 cent) 

Grade A NFDM: $1.69 (down 1 cent)

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