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

Class III markets opened the week with a relatively light volume session as just under 1k cars traded on the day. Of the 998 trades, 684 of those came in Dec and Jan, leaving little activity elsewhere. Prices were moderately lower early in the session and looked as though they wouldn’t move too much when spot saw blocks close unchanged and barrels down a penny on a single trade with no offers behind; however, price weakness continued to build momentum into the close. December finished down 16 cents at 18.58, Jan down 18 cents at 18.61, and Feb down 16 cents at 18.60, while other 2013 contracts were 5 lower to 6 higher on light volume.

We tend to believe that the selling was more likely a result of follow-through from Friday’s session, as we mentioned in yesterday’s commentary that price declines Friday were not nearly as sharp as you’d normally expect, given the declines on spot pricing. A lack of buying interest in the spot session seemed to give way to those declines appearing yesterday. Participants are now trying to determine when (if?) buy interest will appear to support the spot cheese market. With futures still maintaining a premium to the spot prices, we will need to see a bounce in spot pricing in short order or further losses on futures seem unavoidable.

It was an interesting grain session to open the week as Sunday night saw double-digit gains across the board, led by beans trading some 25 cents higher. The gains pushed all three grains up against technical resistance, and during the daytime session the price strength faded. For a time, both corn and beans moved into red numbers, while beans pulled back to single-digit gains. Late in the day, however, some buying interest was uncovered and settlements came in with corn a penny higher at 749, soybeans up 15 cents at 1453.75, and wheat down 2.75 cents at 860.75. A sharply lower close would’ve made market bears feel much more comfortable about upside failing against breakout levels, but as it is moderate gains across the board keep the upside breakout in play early this week. Today’s session will likely be key technically, so keep an eye out for March corn and the 765 level and Jan soybeans at the 1465 ―  a close above those prices likely signals more upside in the near future.

We look for the grain complex to open on modest strength.

Block cheese: $1.76 (unchanged)

Barrel cheese $1.7025 (down 1 cent)

Grade A NFDM: $1.5575 (unchanged)

Butter: $1.59 (down 1 cent)

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