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

Class III gave up early gains yesterday as both blocks and barrels slid lower. Blocks moved 2 cents lower, while barrels shed 1.25 cents. Blocks traded twice, while there were no trades in barrels, and only one offer left for both. 

Yesterday’s slight decline on spot means both blocks and barrels have lost nearly 10 cents since Nov. 7. 

October Class III settled anywhere from -12 to +2, with the January contract nearly 20 cents off its intraday highs. Cheese futures followed Class III, settling mixed anywhere from -.012 to +.003.

Overall, milk is a little tight; however domestically along seasonal lines. Oceania production is past the peak, but still reflects gains somewhere in the 4-5% year over year, with most of the extra volume being funneled into WMP. As Oceania production wanes, and domestic holiday buying comes to a close, the market should continue to see some range-bound trading prior to what we expect will be a seasonal decline.

Spot session results:

Block cheese: $1.8025 (down 2 cents)

Barrel cheese: $1.77 (down 1.25 cent)

Grade A NFDM:  $1.95 (up 0.5 cent)

Butter: $1.585 (up 2.25 cents)

Corn settled slightly lower on the day down, just shy of 3 cents, while Jan beans rallied some 13 ½ cents to settle at 1314 ½.  Corn prices held steady after yesterday’s short covering rally and looking ahead to early January when funds rebalance. This could possibly set the stage for a modest rally in early January followed by a collapse in the aftermath of the January final production report, much like in 2010. In the short-term, however, December corn will have to eclipse the $4.48-$4.50 level to turn technically bullish. Last week’s report has taken some of the pressure off of the markets, but the fundamentals are still bearish, so expect continued farmer selling.

Soy and bean meal futures remain in short-term uptrends, but we expect some sell-side headwinds above the $13.00 level for beans. 

This morning, grains look to open mixed to lower.

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