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

The Class III market showed its true colors Thursday, emphasizing its negative bias as the entire futures complex resumed its strong slide lower. Just over 1,000 contracts traded as the recently stronger 2012 first half posted the worst of the losses. April and May led the way, down 31 and 24 cents, respectively, as producers and speculators took advantage of the recent pop in prices to add to their shorts.

The spot market posted an uptick in volume, as the blocks were able to post a small gain of .75 relative to current futures, while the barrels held firm in price on just two trades posted.  Spot prices have remained stubborn in their efforts to hold near the $1.50 level over the last several weeks though this has done little to stop the fading of Class III prices. All eyes will be on this afternoon’s production report of which the markets reflect an anticipated gloomy outlook for milk prices. 

Corn traded up on the day, with export numbers coming in stronger than expected on corn but near the lower end of the expected range on beans. The market seems to be riding an export wave as record large ethanol stocks have pushed margins there into the red and plants have been closing for “maintenance” as a result. Livestock feeding margins especially dairy and beef have been under sharp pressure going back to mid-November and neither industry looks to be a point of strong feed demand. Ultimately, this should pressure prices lower.

We look for corn to open 4 to 6 cents higher and for beans to open 7 to 10 higher. 

Daily CME spot market prices:

Block cheese: $1.4875 (up 0.75 cent)

Barrel cheese $1.48 (unchanged)

Butter: $1.3975 (unchanged)

Grade A NFDM: $1.3275 (down 0.75 cent)

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