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

With Class III open interest again back of the key 20k mark, yesterday’s bearish Milk Production report did little to move the market with Class III having settled anywhere from +9 to -8. 

Cash-settled cheese followed Class III’s lead, settling anywhere from +.005 to -.005 on the day. The market seems to have factored in much of the bearish sentiment and left us with much of a neutral or choppy tone. The lackluster response from back-to-back bearish reports has left a few questions on the table: Will this stronger-than-expected production continue? And what could possibly curtail it? 

In the short-term, we expect these stronger-than-expected production numbers to continue. Favorable weather conditions in the Midwest, especially, have fostered somewhat of a mini milk boom until the last seven to 10 days since the really frigid weather has hit. Production as noted below in the Midwest has once again seen some healthy increases. On the flip side, feed quality could become an issue if persistent dry conditions continue. 

Generally speaking, both sides of the market continue to reassess the greater fundamental picture.  Although we expected a seasonal decrease in cheese prices, there now has been client talk of prices flirting with the 1.40 level ― we are more than skeptical. Although this may be a possibility, one could expect commercial buying to step ahead of this, especially with uncertainty surrounding the weather.  That being said, we expect this weaker tone to be prevalent at least in the short-term.

Spot session results:

Block cheese: $1.66 (unchanged)

Barrel cheese $1.60 (unchanged)

Grade A NFDM: $1.53 (unchanged)

Butter: $1.505 (unchanged)

Improving South American rain talk was the primary factor igniting a bean sell-off, which lead the grain market lower yesterday ― the first significant down day since the Jan USDA report flipped the bullish switch weeks ago. Alongside the bean sell interest, the crude price fell about 1 percent and the U.S. dollar had reversed early session losses to post gains. All of the aforementioned culminated in March13 corn falling 7 ¾ cents to $7.20 ¾. The overnight session yielded further price leakage, but don’t throw the bull out just yet, not on old crop today. Funds lightened up a bit yesterday, which should occur given a strong string of adding length, and they still have ample funding on the sidelines which can come in.

We look for corn to open 3 to 5 cents lower and beans 10 to 15 lower.

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