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

Class III futures closed out the week as they began ― with prices moving lower, as the marketplace begins to question the demand outlook for dairy products. 

The 2012 futures contracts lost between 1 and 19 cents Friday as 942 contracts changed hands.  The 2012 fourth-quarter futures pack fell 14 cents for the day to $19.62, while losing a total of 23 cents (1.16%) for the entire week. While the longer-term outlook for the Class III market entering into the fourth quarter of this year looks strong due to questionable milk production levels, in the short term the Class III market looks vulnerable to bouts of selling pressure. 

Look for the Class III futures to start the week of trading with lower price action with the opening spot session likely setting the tone.

For the week ending Aug. 25, dairy cow slaughter under federal inspection was down 1,000 head to 60,000 from the week prior, a decrease of 1.64 percent.  The year-to-date slaughter rate still sits 5.3 percent higher than the same period last year, with a total of 1,978,600 head slaughtered.

Corn is “glued” to the $8 mark in Dec futures. Corn is moving sideways and will likely do so with a slightly downward bias into Wednesday’s USDA report; look for beans to do the same. Volatility has come out of the market in a major way. After consolidating, a large and violent snap usually occurs and we suspect this will be no exception following the report. We would buy straddles, we would have a slightly bearish bias into the report, but anything is possible with the USDA.

Daily CME spot market prices:

Block cheese: $1.83 (down 1 cent)

Barrel cheese $1.775 (unchanged)

Butter: $1.865 (down 0.5 cent) 

Grade A NFDM: $1.70 (unchanged)

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