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

Class III volatility continued to run rampant Thursdayas the market rebounded from early-week losses to post gains of 39 to 50 cents from Nov through Feb, while the remainder of 2013 contracts finished steady to 18 higher as well.

The block market went down a penny on the day after trading all the way down to $1.95 before rallying 5 cents into the close to finish at $2.00 even on a massive 14 trades. Barrels also finished down a penny but closed on their lows for the session. We have to say that the size of the rally did come as a bit of a surprise but buyers were still pushing to get loads bought into the close and the market is indicating they expect to see follow through buying during today’s session, as Class III futures for Nov and Dec are now carrying a slight premium to the spot market pricing once again.

Despite the whipsaw action on the spot market and Class III futures pricing, there is very little coming in regarding fresh physical market information that would indicate that such large swings should be occurring. By and large, reports remain that the market is in balance with recovering milk production still being met by firm cheese demand. Holiday buying is still in the marketplace and, for that reason, we can’t see cheese falling below $1.90 in the coming weeks. But, with the market being in balance, it’s also difficult for us to foresee pricing moving much above the $2.00 mark either. If this is the case, Class III futures are likely to chop sideways, though there could be some reaction to this afternoons milk production report come early next week.

Weekly slaughter continues to be strong as 63.4 thousand head this week moved up 6.0% above last year’s levels and the western states continue to be well ahead of previous year at 17.5 thousand head up 10.8% vs. the same week a year ago.

Grain futures made the move that we feared yesterday with soybeans bouncing sharply above the 15.25 mark, closing at 1545.5 up 36.25 on the day and corn futures closing back above the 7.50 mark, settling at 760.75 up 15.25 cents. Both markets are now looking decidedly bullish on the charts, particularly soybeans.

Weekly export sales on corn were 6.6 million bushels vs. estimates of 7.9 to 11.8, soybean sales were 19.3 vs. estimates for 23.9 to 31.2 and wheat exports were 15.1 vs. estimates for 9.2 to 14.7. Seasonally, both markets are supported with harvest drawing to an end. And, while corn export sales are lagging, typical levels basis is very strong and rising domestically while soybeans are benefiting from a strong export sales pace, total sales are at 71% of expected annual sales vs. 49% last year. Today, may offer a little bearish information with the release of Informa’s expected acreage for the 13/14 crop year mid-morning but we are wary of sizeable upside move coming for both corn and soybeans.  

We look for corn to open 5 to 8 cents higher and beans to open 5 to 10 higher.

Block cheese: $2.00 (down 1 cent)

Barrel cheese $1.9175 (down 1 cent)

Butter: $1.88 (up 0.5 cent) 

Grade A NFDM: $1.56 (unchanged)

These data and comments are provided for information purposes only and are not intended to be used for specific trading strategies. Commodity trading is risky and FCStone Group, Inc., INTL FCStone Inc., and their affiliates assume no liability for the use of any information contained herein. Although all information is believed to be reliable, we cannot guarantee its accuracy and completeness. Past financial results are not necessarily indicative of future performance. Any examples given are strictly hypothetical and no representation is being made that any person will or is likely to achieve profits or losses similar to those examples. References to and discussions of exchange traded products are made solely on behalf of FCStone, LLC. References to and discussions of OTC products are made solely on behalf of INTL Hanley, LLC, and OTC products are only available to eligible counterparties.