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

Class III started the month of March on firm footing, with April through December finishing between 3 and11 cents higher on volume of 1,178 contracts trading hands. Though short-term technical have been — and continue — to show the potential for more futures prices strength, Class III’s resilient price action amid continued bearish fundamental news is somewhat surprising. Yesterday the market had to absorb both lower international prices from the USDA and another sharp decline on the weekly Dairy Market News dry whey price report…not to mention a steady chatter about surplus milk in the country.

Spot cheese didn’t move higher, but was bid unchanged in both blocks and barrels with no offers posted. Although Thursday may have been a day of reprieve for spot price movement, we don’t expect that to be the case today. While fresh blocks appear to be plentiful, anecdotal conversations point to light offers on the country. Additionally, there has been some chatter about a tightening aged barrel market developing. Though we trade fresh barrels at the exchange, fresh barrels (less than 30 days old) are can occasionally be substituted for aged barrels in times of shorter supply. Look for blocks and barrels to edge higher once again in the short term.

While Class III futures appears poised for more upside as we get rolling in March, we would be remiss not to say that at this point it looks like corrective momentum as opposed to a new bull market. The overriding fundamental picture for milk is not very bullish at all. Once we get past a short-term psychological boost/correction, the fundamentals will have to change OR prices ought to succumb to much more downside 30 to 60 days out.

Grain markets are fickle lately. Old crop corn, for example, push through technical resistance earlier this week only to feel soft and somber Thursday. There’s a lack of conviction by the bulls and, if it hangs around for another day or so, prices ought to decline more. Perhaps it was a head-fake to the upside or perhaps a reprieve before more strength.  For now, weather is not providing headlines to enflame supply worries, but demand is on solid footing.

Weekly corn export sales were down from last week at 28.1 million bushels, at the lower end of trade expectations. China accounted for roughly 17% for the week’s business.

China actually bought more soybeans. Sales for last week were reported at 35.9 million bushels, above the highest trade guess of 29.4 million bushels, with China fetching almost 43% of the business.

We look for corn to open 1 to 3 cents lower and beans to open 2 to 4 lower.

Daily CME spot market prices:

Block cheese $1.4875 ((unchanged)

Barrel cheese $1.50 (unchanged)

Butter:  $1.465 (up 6.75 cents)  

Grade A NFDM: $1.2875 (unchanged)

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