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

The dairy markets are skittish. When spot prices have moved up, futures have followed but only in nearby months and often lethargically. When no activity has occurred, futures have fallen throughout the Class III and CSC complexes and drastically. We believe this is a result of the market having mixed opinion relative to short term vs. medium/long term expectations, with the short term being neutral to bullish and medium to long term being very bearish. This mix has longs on guard to bail at the first sight of stalling. We had the Milk Production Report out yesterday afternoon and the Cold Storage Report following soon. Below is our analysis of the milk production report.

Milk Production Brief:
In our opinion, the report was slightly bullish. Total milk production was right in line with estimates, but the downward revision of all U.S. milk cows in combination with a steady number of cows month over month has us calling this report just slightly bullish. 23 State Milk production was up 1.7% vs. September 2010, which was right in line with our estimate for a 1.8% increase. We expect early strength on Class III futures off of this report.

Grains fell as the day wore on as the U.S. dollar firmed and the Euro failed. Outside markets dominated the trade psychology as European woes, and Apple earnings weighed on capital risk tolerances. Most commodity markets fell harder and harder as the day wore on. With harvest in full force, the sell side pressure should be felt in full force over the next couple weeks. If that sell side pressure fails to ignite serious strength, which could drag trend-followers along with them, then we should rally on buy side hedging as well as fund money coming back in afterward. Look for short-term uncertainty and softness.

It was reported this week that China's gross domestic product (GDP) came in at 9.1% for the third quarter, below analyst expectations of 9.3%. The steady decline of China’s growth worries some economists, but we have to remember they have put on the brakes to purposely slow down an overheating economy. We can’t be surprised when it starts happening — just surprised to what extent it happens. 

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

Daily CME spot market prices:

Block cheese: $1.72 (unchanged)

Barrel cheese $1.72 (unchanged)

Butter: $1.86 (unchanged)  

Grade A NFDM: $1.490 (unchanged)

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