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

Class III volatility slowed yesterday as volume dropped off significantly over the previous session and recent sessions. Despite the drop-off, the entire complex was able to post gains on tighter trading ranges. Worth noting though, the futures are trading currently at a steep premium to the spot market. Spot Class III sits near the $16.75 level, while first-quarter futures hover at the $17.49 price on a gain of 9 cents on the session. The first half of 2012 futures posted a gain of 10 cents, closing at $17.56. The current trend is running well above the current 9, 20, 50, and 100 day moving average, but has yet to achieve a severely overbought technical level. This situation will require close monitoring as hedgers look to set their budgets for the year.

Nestle, the world’s biggest food group, will invest $396 million in a milk supply center in Northeast China. Nestle and the government of Shuancheng City in Heilongjiang province signed a deal Wednesday under which Nestle will build China’s biggest fresh milk supply operation within five years. 

Argentina and parts of Brazil have been getting some much needed rain, but the current weather patterns are not predicted to last long, with a return to extreme heat and dryness forecast for the near future. The weather uncertainties of South America, coupled with the upcoming USDA reports, have kept traders on their toes and prepared to drive markets either way on a moment’s notice.  March corn fell ½ penny to settle at 651 ½, while March wheat gained 1 ½ cents to 641.  March beans took the brunt of the selling pressure, dropping 29 cents to settle at 1203, sitting just above a major support level of $12.00. 

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

Daily CME spot market prices:

Block cheese: $1.595 (unchanged)

Barrel cheese $1.58 (unchanged)

Butter: $1.6275 (down 1.25 cents)  

Grade A NFDM: $1.45 (unchanged)

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