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

The Class III market had an uptick in trading volume yesterday, registering over 800 trades in a session that provided mixed results. The Dec12 through Dec13 futures settled between 18 lower and 7 higher amidst a silent spot session. The marketplace has had time to filter through all the reports released last week, yet participants are still reluctant to aggressively step in. Premium is coming out of nearby months to bring prices in line with current spot pricing, while deferred contracts seem to be finding support from the recent rally in grain prices particularly late in the day as futures bounced a bit after milk settlements with grains rallying into the close. 

The USDA’s cost-of-production estimate per cwt. reached a record high for the month of October at $20.56/cwt., breaching $20.00 for the first time ever. The high cost of production seems likely to continue to trend of heavy cow culling, especially considering the price of milk has been on a downswing and grain prices have seen a recent rally. 

Grain markets ended the trading day with prices settling near their intra-day highs as buyers stepped in with concerns regarding the wheat crop’s outlook and the impact of continuing drought in the U.S. The Mar13 corn contract rallied nearly 10 cents in the final hour of trading and settled a ¼ cent off its intra-high at $7.64, pushing through some technical resistance levels and piercing the upper Bollinger Band on a daily chart. This just a penny below the $7.65 breakout level we discussed just prior to the Thanksgiving holiday. The Jan13 soybean contract managed to add 24 ½ cents on the day to settle at $14.49 ¼, its highest price level since 11/9.  Both corn and beans seemed to feed off of wheat market strength as the Mar13 contract had a strong showing, gaining 24 ¾ cents to settle at $8.88 ½, a near 50% retracement of the 84 ¾ cent 11/9 to 11/6 selloff. This area also one of strong resistance on the wheat charts.  The test of these resistance levels will be key to price direction in the coming weeks as trade looks forward to the Jan. 11 USDA reports.

We look for corn to open steady to 3 cents lower and soybeans 3 to 6 lower.

Block cheese: $1.825 (unchanged)

Barrel cheese $1.775 (unchanged)

Grade A NFDM: $1.5575 (unchanged)

Butter: $1.6725 (down 0.75 cent)

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