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

Spot cheese collapsed yesterday, futures tugged along to the downside, as we traded nearly limit-down in Dec which traded 659 of the total 1,750 Class III contracts and 99 of the 250 cash cheese futures contracts.

On the massive sell-off yesterday, we had strong volume in both milk and cheese futures while OI increased by 151 contracts; this supports the bear trend alongside the price action. That being said, we might have overdone it a bit on futures [price action yesterday, we might bounce back a bit today or Monday. Blocks in the low $1.80’s should attract some demand, and we see the downside objectives in the spot cheese market as likely being met in the short term with Super Bowl buying still to occur.

We suspect the wide spread between blocks and barrels (at 9.75 cents, usually 3-5 cents) to grab the focus as price action is most likely to move sideways as the next-week market participants will probably focus on getting the spread back in line with historical norms. We suspect there is a price bounce to come in the next few weeks, thus buyers should be active here short term (with options most of all), but we see Q1 as likely soft in price and strongly suggest that farmers hedge their margins and milk price aggressively for Q1 before we close out the year. End-users should be showing some patience on flat price here, looking to pounce in Jan/Feb and using options for some security before then.

In the grain complex, there was downside price action ― corn, beans, meal and wheat all to the downside with beans leading the way as funds liquidate, as volatility diminishes and fresh news of significance is seemingly harder and harder to come by. Economic concerns are everywhere plaguing the demand side of the equation. All that being said, technically these markets appear a bit oversold and likely to see a bit of a bounce next week on a purely technical basis.

We look for corn to open 3 to 5 cents lower and beans 15 to 20 lower.

Block cheese: $1.82 (down 9 cents)

Barrel cheese $1.7225 (down 11.25 cents)

Butter: $1.865 (down 2.5 cents) 

Grade A NFDM: $1.5725 (down 0.25 cent)

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