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

An interesting end to the week for Class III, as the spot market continued to decline and January suddenly saw significant buy side pressure to close the week. Short covering was likely a major factor Friday, as open interest in January declined on the increase in price. The big gains and potential margin calls may encourage some additional short covering early this week (strong volume and Jan up as much as 14 cents Sunday night), but ultimately this does not appear to be new buying interest — and that type of rally usually fades quickly.

On the week, both the blocks and the barrels closed lower in each session. But the selling aggressiveness didn’t follow over into the futures market, as the Q1 pack average gained 31 cents to 17.16 to close the week, while the Jan to June pack average also climbed sharply gaining 23 cents to close at 17.07. With schools going on break and more milk coming available for processing, this doesn’t seem like a time that futures and the spot market should be heading in opposite directions.

Judging by the traffic both on the roads and at the mall this weekend, the holiday season is in full swing and so this will be an interesting week ahead with USDA Milk Production report this afternoon, GDT Tuesday and cold storage on Thursday afternoon to go along with the divergence between spot and futures prices. The potential is there for some wild swings on light volume with many likely to be leaving the office toward the end of the week for holiday travel and taking their final vacation days of 2011, though the markets will be open for the full week and closed next Monday and we will be here each day.

A strong close to the week for grains as soybeans led the rally on growing fears of further dryness and high temps in South America. Despite some strength to end the week, corn closed at 5.83 for March down 11.25 cents and made a new weekly closing low going back to the send week of January! Informa is projecting planting at 94.3 million acres, up from 91.8 this year and likely to produce eventual lower prices if realized. Soybeans, seemingly able to rally based on nothing other than the South American weather issues, finished the week at 1139.5 up 23 cents on the week. Informa estimated bean acreage at 74.6 vs. 76 million last year.

We look for corn to open 12 to 15 higher and for beans to open 15 to 18 higher.

Daily CME spot market prices:

Block cheese: $1.5625 (down 0.75 cent)

Barrel cheese $1.535 (down 0.25 cent)

Butter: $1.6025 (unchanged)  

Grade A NFDM: $1.45 (unchanged)

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