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

Class III price declines continued yesterday, aided by the onslaught of negative news. Recent dairy reports have been nothing but unkind to Class III, and yesterday was no exception as dairy product demand seems stagnant to softer in the face of ramped up milk production —- the outlook for Class III looks grim. 

On Thursday, the market posted slight declines in both the blocks and barrels, though the Class III price damage began well before the spot session.  Class III trading was active, as 1810 contracts changed hands, with 1091 trades posted between Feb and March. The extreme weakness posted in the whey markets recently — limit losses in many months yesterday, along with a lack of demand for any of the dairy products — has only bolstered our opinion that the Class III is destined for continued price declines in the near future.

 Dry whey futures accelerated forcefully to the downside yesterday, reaching limit down in a number of nearby contracts.   Feb12 through June12 all settled limit down, as Feb12 closed at 65.00 and March12 at 58.75, on 265 trades.  DMN weekly prides were released today, highlighting a fundamental shift in market sentiment.  Central mostly prices came in at a disappointing 0.6900 (-0.0050) – 0.7200 (-0.0050), while Western mostly could do no better with 0.6500 (-0.0450) – 0.7300 (-0.0100). The combination of these negative indicators points to a possible end to the relentless strength that the whey market has enjoyed over the last several months.  Look for continued weakness in the close-dated contracts, lending to the overall negative price outlook for the entire dairy complex.

Overnight, the whey markets were extremely active as sellers were looking to get contracts priced with the ability to do so after futures locked limit down. By 10 p.m. Chicago time, 107 trades had taken place and prices were lower by 1.650 cents to 4.75 cents from Feb through July. Interestingly most months were off their lows some by more than 2 cents. By this morning volume rested at 119 contracts and prices remained in line with the earlier activity though June was back to just a penny lower, while other months were down 3 to 4.750 cents.

The grain markets came into yesterday’s session lower on overnight weakness, specifically the corn and soybeans. Concerns related to the unseasonably frigid temperatures in Europe remain evident as the grains rebounded throughout the day’s trading session. This cold streak could affect the quality of the wheat crop in Europe. This weather issue has been partially offset by the recent light, sustained rains that covered most of Argentina, and to an extent, Brazil. More rain is forecast for this area, though the soybeans there are thought to benefit more than the corn crops.  The recent drought and heat is thought to have caused some irreparable damage to the projected corn yields in that area. 

We look for corn to open mixed 1 lower to 2 cents higher and for beans to open 7 to 9 higher.

Daily CME spot market prices:

Block cheese: $1.485 (down 0.75 cent)

Barrel cheese $1.4875 (down 0.25 cent)

Butter: $1.4925 (down 0.25 cent)

Grade A NFDM: $1.3575 (down 1.25 cent)

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