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

Class III markets came under pressure yesterday, even as blocks crept higher to settle at $1.8900. While blocks moved up, barrels held firm at $1.7800 on one bid and no activity. Class III settled anywhere from UNCH to -18 yesterday with January seeing the steepest decline, down -18 cents. Blocks are now 5.75 cents off their recent high of $1.9475, while barrels are 10.50 cents lower. The Jan-Dec pack is currently trading at $17.51, nearly 12 cents off its recent high.

So, what has caused some of this recent erosion? Every bull has to pause to breathe… Short covering and emotions undoubtedly helped fuel a larger than expected surge in prices at a time when those who delayed purchases needed to procure product for the holiday season. With that said, as seasonal demand wanes and the fundamental picture becomes clearer we can expect to see Class III and cheese chop along before declining along seasonal lines unless Class IV can continue running strong, thereby forcing Class III to try and keep pace. We do not expect Class III to fall sharply in the immediate future, as last-minute buying will likely step in and exports remain strong, but it does appear that the bull is pausing as holidays draw near ― and pauses make traders nervous.

Spot session results:

Block cheese: $1.89 (up 1 cent)

Barrel cheese: $1.78 (unchanged)

Grade A NFDM:  $2.07 (up 1 cent)

Butter: $1.66 (unchanged)

In the grain complex, March corn firmed a bit as traders were encouraged by the large weekly ethanol production of 944,000 barrels vs. 913,000 seen last week. This is the largest weekly production since late 2011. The market shrugged off looming concerns over Chinese rejection of U.S. corn due to GMO issues. The focus now is centered on the Jan. 10 final production and stocks report. The USDA is currently forecasting annual corn feed use up 20 percent year-over-year, despite little change in animal numbers. Soybeans ended the day 5 ¾ cents higher as traders expect another large weekly U.S. export sales report. Total sales near 800,000 tons could bring the total U.S. sales to near 96 percent. USDA is currently forecasting Brazil exports at 44mmt, a new record. Argentine exports are at 9.7 vs. 7.7 last year.

This morning, we look for the grain complex to open slightly lower.

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