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

The Bernanke is falling, the Bernanke is falling. We’re going over the cliff! Wait, which one? The fiscal cliff or the dairy cliff? Oh, whew, we’re safe.

Are we?

We have averted the “cliffs;” the QEs of the Fed are passed and about done in spending prowess. We are to stagnate and see how we recover or if we recover economically. And dairy is left to much the same. No Dairy Security Act, no new farm bill (anytime soon), no new federal order policy ― it is much of the same.

For some time, years now, we’ve heard the talkers of the corn/milk correlation. There are lots of takes and theories on it, and all are interesting to hear out and look into. Clearly, they connect somehow, but exactly how given the insertion of ethanol as a huge user of corn and funds… and well it just “ain’t as simple as two plus two.” Nonetheless, we look into the market to see where those who put their money where their mouth is are going and they are going after a lagged correlation.

Jan milk is in “pricing mode” so we’ll negate the 6-cent gain there yesterday and focus on beyond. Feb-April contracts were 1 to 3 lower on no major news other than a major grain bull move the last two sessions. And during this grain bull move, no one bought up these nearby months on light volume to yield a price increase. However, we can see yesterday that May-Dec13 were 4 to 10 higher, figuring when milk production might feel the “pain” probably a good percentage of it.

Spot session results:

Block cheese: $1.72 (unchanged)

Barrel cheese $1.6725 (unchanged)

Grade A NFDM: $1.535 (unchanged)

Butter: $1.46 (up 1 cent)

In the grain complex, the bull is back in town. Corn ran away with it; beans blew through $14 as expected. Funds have added corn contracts for six consecutive sessions now; we appear poised to challenge $7.50 in a hurry. March corn gained 2.2% or 15 ¼ cents to $7.24. Beans made up for Friday’s bullish lapse as they moved up 44 ¾ in March (3.3%) to $14.18. a pullback to buy looks good, but sometimes you just have to jump in and at least short-term that’s what it looks like here. Long-term, we have shown time and time again that $7.50 corn kills demand so watch out above.

We look for corn to open soft and soybeans 2.5 to 3.5 cents lower. 

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