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

The spot market saw barrels climb another penny to $1.9300 on a bid, while blocks slipped ¼ cents on $1.8775 on an offer. The market reacted by settling steady to higher in most months, with April 2012 being the sole exception where prices settled down 2 cents. Despite settling higher, prices were well off their highs seen prior to the spot session. November traded above the $19 mark while December, +34, and January, +37 each saw very large gains as well. Volume was solid with 1126 contracts traded.  

The temperament remains somewhat mixed here as there appears to be thoughts that the tightness in fresh available barrel cheese in particular could still catapult prices to the $2.00 level. Yesterday’s mixed spot trade and reluctant futures trade offer a healthy dose of doubt to the $2.00 argument. Still, with the economy on weaker footing, fast food and processed cheese sales have been — and will likely continue — to be robust. We look for continued interest in owning barrels at current price levels, but expect that the $1.90 level — not the $2.00 level — ought to shake product loose. Meanwhile, a short-term downward correction on nearby futures is close at hand.

Many market participants will be here in Chicago today for the CME Dairy Forum, and we always look forward to hearing the industry’s concerns and the lively discussion at this event. Tom Gaughan and Dave Kurzawski from our office will be attending the event today, so please look for them if you are in town.

Cheese futures traded mostly in line with Class III prices. Volume was decent with 19 contracts traded. Prices were steady to .017 cents higher except in April which was a hair lower. Open interest continues to climb for this contract and now stands at 6,033 contracts. Class IV volume was moderate with 39 contracts traded and prices mostly steady to a nickel lower.

Grain prices saw modest declines in corn, where the December new crop was down 2 ½ cents while March beans were down a more significant 18.5 cents. Wheat was a bit stronger, settling 2 cents higher. We don’t expect much out of the market today, as most of the action of the last few days was traders jockeying for position ahead of tomorrow’s USDA grain report due out at 7:30 am central time. This report generally marks the last major production changes for the crop year, but very minimal changes are expected this time around. See estimates below.

This morning, we look for corn to open 1 to 3 cents higher and beans to open 7 to 10 higher.

Daily CME spot market prices:

Block cheese $1.8775 (down 0.25 cents)

Barrel cheese $1.93 (up 1 cent)

Butter:  $1.815 (down 1.75 cents)  

Grade A NFDM: $1.430 (unchanged)

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