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

Not much happened yesterday to stimulate new dairy activity and, thus, it was kind of quiet.

Technically, the charts suggest that the support levels have held and appear to reflect slightly bullish in formation. It was a very quiet overnight session with just 15 trades in milk and nothing in the other products.

The Dairy Products report released yesterday contains estimates of September 2012 dairy product production, as well as manufacturer’s end-of-month stocks for dry proteins and lactose.

Our interpretation of this report is as follows:

  •  Butter— slightly bearish. Butter production in September was 136.4 million pounds slightly above our expectation for 131.3 million pounds. Year-over-year production decreased by 1.1%, while on a daily average basis production was up a sizeable 8.1% vs. August.
  • Cheese—slightly bullish. September American cheese production was 346.1 million pounds, up 2.3% from a year ago and right in line with our estimate for 347.5 million pounds. Mozzarella cheese production was 288.2 million pounds, up 1.0% from a year ago and up 4.3% on a daily average basis from August. Total cheese production however was well below expectations at 870.6 million pounds vs. our estimate for 890.1. While we term the report slightly bullish in comparison to expectations, perhaps a supply shortcoming is more to blame for price strength. 
  • Nonfat dry milk— slightly bearish.  Nonfat production in September dropped a staggering 21.8% on a daily average basis from August.  Total production was 84.4 million pounds, this was well below our estimate for 99.5 million pounds. Skim milk powder production did pick up some of the slack showing a 10.5% increase in production on a daily average basis. Interestingly, despite the sharp drop in total production, manufacturers’ stocks were up by 12.1% from last month to 118.3 million pounds. We term this slightly bearish due to the unexpected stocks increase despite the sharp drop in production.  
  • Dry whey—slightly bearish. Dry whey was highlighted by sharp revisions in last month’s numbers. August production was revised down 6 million pounds to 78.0 million but while production was lower stocks were actually revised higher to 40.0 million pounds up by 2.5 million pounds despite the production reduction. September production was 74.0 million pounds, down 3.6% from a year ago. However, stocks were up sharply from last month’s revised number growing by 7.0% to 42.8 million pounds.
  • WPC—slightly bearish. WPC production was virtually unchanged on a daily average basis from last month at a total of 34.0 million pounds, that is however a 4.4% reduction year over year. Stocks meanwhile grew moderately, increasing by 1.0% month over month to 54.3 million pounds and remain well above the historical norms.
  • Lactose—slightly bullish. Lactose production increased moderately from last month to 86.7 million pounds up a solid 4.4% on a daily average basis. Inventory of lactose saw a decline however falling by 2.3% from August to 82.7 million pounds. The increased production combined with the declining stocks indicates firm demand for product. 

In the grain complex, what started as a strong bull faded before days end as beans closed well off their highs and corn actually turned negative to close down 4.75 cents in Dec12 to $7.51.

FCStone released its November crop survey with corn yield at 124, production at 10881; bean yield 39.1 and production at 2959.

We look for corn to open 1 to 2 cents lower and beans 8 to 10 lower.

Block cheese: $2.11 (unchanged)

Barrel cheese $2.00 (unchanged)

Butter: $1.89 (down 0.75 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.