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

Block cheese saw its biggest daily price increase since Jan. 4. Barrel cheese saw its biggest daily price increase since last Nov. 15; spot butter also increased.

Holiday and March Madness demand is here. And, although it might be short-lived, we are getting a bounce. There is cheese available in the country, but not in hefty quantities; we are heavier on butter and powder. With ample milk supplies, as the U.S., New Zealand, Australia and Europe are flush with more milk that anyone anticipated, the world continues to grapple with how and where to move it all. This is a bounce in milk prices to be sold unless we get some “too” weather — too hot, too dry, too wet, too something besides perfect for milking.

It was interesting to note that amid sharply higher dry whey futures and another day of firming spot cheese prices yesterday, Class III futures largely gave just a ho-hum response (except for  maybe April, which finished up 29 cents). Our though here is that the trade is pulling futures prices in line with spot cheese by way of… well, whey. That idea mixed with the fact that the larger picture is still showing a downtrend intact for Class III, and the buy side is not willing to aggressively chase prices higher — at least not yet.

As for producers, the February prices are the lowest in 13 months. However, we don’t foresee these on-farm losses as tightening the milk supply much if at all. Yes, some herds will get beefed or liquidated by finance pressures. More farms will be bought, heavily culled out and replaced with top-producing animals at minimal cost because of the strong beef price and ample supply of heifers. We look for big, well financed producers to get even bigger in 2012 as banks push troubled operations toward them.

Grain markets traded very quietly yesterday as soybeans continue to show strength relative to corn and wheat and prices held higher throughout the day pushing toward double digit gains and holding corn above unchanged. The strength was impressive in the face of mostly softer outside markets and a very strong U.S. dollar. Export sales later this morning will be closely monitored as that seems to be the biggest fundamental factor in play for the grains. And the March 9 USDA report is just now over a week away.

We look for corn to open 2 to 4 cents lower and beans to open 4 to 6 lower.

Daily CME spot market prices:

Block cheese $1.4875 (up 1.5 cent)

Barrel cheese $1.50 (up 2.75 cent)

Butter:  $1.3975 (up 0.25 cent)  

Grade A NFDM: $1.2875 (unchanged)

These data and comments are provided for information purposes only and are not intended to be used for specific trading strategies. Commodity trading is risky and FCStone Group, Inc., International Assets Holding Corporation, and their affiliates assume no liability for the use of any information contained herein. Although all information is believed to be reliable, we cannot guarantee its accuracy and completeness. Past financial results are not necessarily indicative of future performance. Any examples given are strictly hypothetical and no representation is being made that any person will or is likely to achieve profits or losses similar to those examples. References to and discussions of exchange traded products are made solely on behalf of FCStone, LLC. References to and discussions of OTC products are made solely on behalf of INTL Hanley, LLC, and OTC products are only available to eligible counterparties.