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

Class III prices stabilized last week in the face of an onslaught of negative news. The release of the 2011 Milk Production report highlighted this sentiment, as year-over-year milk production for all 50 states increased by 1.8 percent. December production grew at an astounding 2.5 percent for all 50 states over November. Production per cow rose to 57.9 pounds per day, an increase of 1.6 percent. Couple this with the Heifer Inventory Data, which posted a gain of 80,000 milking cows, and the future for Class III market looks bleak in the near term (of course, total U.S. Cattle Inventories dropped to a 60 year low – down 2.1 percent versus expectations of a 1.5 percent decline – after drought scorched pastures in the South this past summer).

The milk futures market looks poised to test the $16 price range in the near months without a quick spike in demand. The recent price support of the last few trading sessions should wane in the coming days, as those having been short the market and covered to lock in profits begin to re-establish their positions.

Last Friday’s spot session saw heightened activity as multiple buyers met strong sell-side demand from couple sellers who consistently hit the bulked up buy orders; there is product available and, while some inventory replenishing is taking place, we suspect the continued strong supply will overwhelm the market place.

Corn had an interesting week, testing some resistance and support levels all in the span of one short week. The movement was most of all a sideways trade, chopping between short-term resistance points for most of the session Friday and the week. There are two schools of thought what is the major talking point when it comes to the grain trade at the moment, one being the constantly evolving weather systems, concerns, and varied levels of moisture involving South America and now Russia/Ukraine as well (as they are frightfully cod and bitter). The other sits with the U.S. dollar which started the year firm but collapsed recently, inciting rumors that Chinese buying could grow quickly. While the bulk of the South American weather is likely already baked into the market, they are currently getting some better rain conditions and it appears as though with option expiration behind us we might very well see things cool down.

We look for corn to open 4 to 6 cents lower and for beans to open 9 to 11 lower.

Daily CME spot market prices:

Block cheese: $1.51 (up 0.5 cent)

Barrel cheese $1.495 (up 1 cent)

Butter: $1.55 (down 0.5 cent)

Grade A NFDM: $1.45 (unchanged)

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