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

Class III futures reversed Monday’s losses, gaining back most of what they lost to open the week. Oct through Dec closed up 20 to 27 cents on the day, while Q1 was up 4 to 7 cents on the day. Volume cleared the 1K mark for the second consecutive day, but yesterday’s session saw a much more balanced trade with just 339 trades in October and over 300 trades in 2013. Options volume was also very strong with near 1K puts and calls trading yesterday.

The market strength seemed to come mostly as a result of the FAS export data released this morning. It was a bit of a mixed bag with cheese exports up 35 percent versus a year ago and total whey proteins up 13 percent versus a year ago, while NDM (-13%) and butterfat (-32%) exports were lower year over year.

Class III was able to hold onto gains throughout the session, despite the barrel prices dropping and weakness in both the grain and Class IV markets. We’d look for a continued sideways trade in the coming sessions with the grain report this morning likely to impact Class III markets today.

The grain markets continued their downslide Tuesday ahead of the September USDA report later this morning. It came as a bit of a surprise to see the sizeable losses pre-report with a lack of fresh news. The market is certainly offering conflicting signals as seasonals and technicals seem to be bearish, but fundamentally we still do not know the size of the crop and have yet to truly cut any consequential demand. .

Daily CME spot market prices:

Block cheese: $1.83 (unchanged)

Barrel cheese $1.77 (down 0.5 cent)

Butter: $1.82 (down 3.5 cents) 

Grade A NFDM: $1.70 (unchanged)

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