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

Class III futures came alive yesterday with volume tipping the 2,000 contract mark (2,328 total) under renewed speculative and producer sell pressure. Bullish sentiment was diminished primarily by both lower corn and spot cheese prices. Corn continued its steady slide amid news of better-than-expected harvest results and bigger South American projection. And then, after opening firm and trading higher on the day, both block and barrel spot prices closed lower for the first time since Sept. 7 and 11, respectively. Aug. 31 was the last day they both closed lower together. Cheese futures followed Class III trading solidly lower across the board and posting sharply higher trading volumes (near 200 contracts).

Although the supply of milk remains tight out West and both domestic and demand abroad appears largely better-than-expected, general sentiment is skeptical of $2.00+ staying power. Regardless of bullish underpinnings, commercial buy interest appears more aggressively focused on the here and now as opposed to 2013 at this time lately. More price weakness on 2013 contracts may actually exacerbate buyer’s willingness to stand down in favor of locking in even lower prices. 

The grain complex continued to slide Thursday ahead of this morning’s USDA Stocks in all Positions Report. We think the grains have done an excellent job of pricing in what is largely expected to be a bearish report after having peeled off 35 cents from December corn and 50 some cents on January soybeans since Monday. 

Block cheese: $2.075 (down 0.75 cent)

Barrel cheese $2.035 (down 0.5 cent)

Butter: $1.94 (unchanged) 

Grade A NFDM: $1.67 (down 1 cent)

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