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

Friday’s Cass III trading session ended with mixed results with the Dec12 contract gaining just a penny, while the 2013 contracts finished with prices between 8 higher and 7 lower. The spot cheese session provided little insight, as both the blocks and barrels finished unchanged and untraded, though each market closed the session with one uncovered bid. The first quarter of 2013 futures pack average price closed out the week at $18.15, down 18 cents for the day and a total of 63 cents lower for the week.

Milk production in the Midwest is increasing steadily along seasonal trends. Milk production in the West is building slowly and is running behind year-ago levels as many producers struggle with profitability as high feed costs continue to weigh heavily. There is talk ― and that’s all it is right now is talk ― that the banks will be taking forceful action early in 2013 out West.

The grain markets closed out the week with weaker price action as lower prices were registered across the entire grain complex.  The Mar13 corn contract fell by 14 ¼ cents on Friday, leading to a weekly loss totaling 15 ½ cents. The Jan13 soybean contract dropped 19 cents to $14.72 ¼ with a weekly loss of 33 ½ cents. 

The weakness in the grain markets can be attributed to a couple issues. The low water levels of the Mississippi are adding to the concerns regarding U.S. grain exports, which have been slowing of late, while U.S. crops are finding demand for South American-originating crops to be strong.  Ethanol-related demand for corn has been slipping of late, while the impending “fiscal cliff’ we are facing in the New Year is dampening market optimism. For now, though, the focus is likely on tomorrow’s USDA Crop Production and Supply/Demand report as people get some positions squared away.

Block cheese: $1.76 (unchanged)

Barrel cheese $1.66 (unchanged)

Grade A NFDM: $1.5575 (unchanged)

Butter: $1.59 (unchanged)

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