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

The Class III bull has really come alive in December. And yesterday was more of the same ― strong price action on moderately heavy volume (just over 2,000 contracts). Producers have been jumping at the opportunity to make additional milk sales or adjust existing hedges. Commercial hedge interests appear to be the primary buyers with consistent market-level orders supporting futures this week. 

And the USDA offered up another reason for them to buy yesterday with its report that showed milk production is up a mere 0.3 percent vs. year ago. 

International cheese price reports remain strong, and spot blocks look poised to hit the $2.00 mark a week ahead of Christmas. 

The head-scratching aspect to this market is that we hear domestic orders are winding down and fluid milk is starting to free up if it hadn’t started a week or so ago. From the looks of it, available milk must be going to butter/powder toot and sweet. We respect that likelihood and the bullish nature of the Class III and cheese markets right now, but expect that the $2.00 level will shake some cheese loose this time of year, which, if it happens, could increase at least short-term market volatility.       

Spot session results:

Block cheese: $1.985 (up 1.25 cent)

Barrel cheese: $1.93 (up 4 cents)

Grade A NFDM:  $2.11 (unchanged)

Butter: $1.56 (up 1 cent)

Grains had very minimal price action in the overnight with corn up a penny across the board, wheat up in the first half, down in the 2nd half of next year, and beans down between one to four cents in the first three quarters of 2014, mixed in the back months.

Export figures were released today with corn and wheat much higher than expectations, and beans severely below expectations, giving a slight bump in price action but everything settled within 6 cents of the opening.

For now, these markets should remain within relatively tight ranges, but keep your eyes open for additional purchases and cancellations of U.S. grain. One thing worth mentioning is the activity in the corn/wheat spread. We’re starting to see some relief here as the spread settled at -$1.80, particularly gaining steam since the beginning of this month. Look for this spread to continue to narrow a bit in the short term as the wheat market remains starved for export sales.

This morning, we look for a mixed open with corn and wheat slightly lower, while beans and meal are slightly higher. 

The trading of derivatives such as futures, options, and swaps may not be suitable for all investors. Derivatives trading involves substantial risk of loss, and you should fully understand those risks prior to trading. Any reference to past performance is not indicative of future results. All references to futures/options trading are made solely on behalf of FCStone, LLC. All references to swap execution and bi-lateral swaps are made solely on behalf of INTL Hanley, LLC. FCStone, LLC will clear swaps when applicable. Swaps are only available to eligible counterparties. All observations of economic, political and/or market conditions are not intended to refer to any particular trading strategy, promotional element or quality of service provided by INTL FCStone Inc. and its subsidiaries and should be construed as market commentary. All recommendations to buy or sell a specific derivative or forecasting statements regarding market activity and the pricing thereof should be construed as a solicitation in any jurisdiction in where such an offer or solicitation would be legal. Proper context and guidance including but not limited to the particular trading objectives, financial situations and the needs of the intended audience were taken into consideration when this recommendation was prepared. Contact your account representative for specific advice to meet your specific trading preferences or goals. These materials represent the opinions and viewpoints of the author, and do not necessarily reflect the viewpoints and trading strategies employed by INTL FCStone Inc. and its subsidiaries. Sources of information believed to reliable were used in preparing such observations, and no guarantee or representation regarding the accuracy of those sources has been made. INTL FCStone Inc. and its subsidiaries are not responsible for any redistribution of this material by third parties, or any trading decisions taken by persons not intended to view this material.