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

Yesterday brought booming trading volume in dairy products, excluding Class III. The volume move came in bullish fashion in advance of the USDA’s Milk Production report which was released yesterday afternoon.  For more on the Milk Production report, click here.

Let’s start with a technical snapshot, courtesy of Peter Ullrich:

“Class III milk is at a critical stage, long-term, because the front months have completed what, so far, are bullish corrections, and the months in the back half of 2013 have extremely bullish corrective formations, and many of these already have ended, resulting in another retest of what so far are long-term tops (they might get taken out.)”

This pivotal point noted above also coincides with a cheese price level we had long noted coming with serious buy-side support. Buyers are seriously interested in procuring cheese in the 1.80s and CWT funding is of use there because we aren’t as uncompetitive as we had been internationally when we were up over two bucks. Look for fundamental stabilization as Super Bowl buyers capitalize on the recent dairy/cheese price breaks, and be watchful to see if they lock up many months out beyond Super Bowl as we suspect they will ― this would potentially tighten supplies later on when milk supply might also wind up seriously constricted further on the West Coast.

In the meantime, the balancing issue is that New Zealand is reportedly up 10 percent season to date on milk production as they quickly approach flush. What the U.S. buyers need to watchful of and sellers (farmers) need to be hopeful for is when New Zealand is off production ― the time which looks like we might have a lot of product purchases forward-contracted and difficulty in the U.S. getting that milk because of on farm losses. We could be headed toward a price explosion upward in Q2 next year.

We look for the grain complex to open lightly mixed this morning.

Block cheese: $1.825 (unchanged)

Barrel cheese $1.7225 (unchanged)

Butter: $1.72 (down 7.5 cents) 

Grade A NFDM: $1.5625 (down 0.25 cent)

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., INTL FCStone Inc., 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.