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

Class III trading volume remained low yesterday as prices declined by a few cents on only a few hundred trades early in Monday’s trade. The spot session reinvigorated price movements and spurred a big rally, but volume still finished below 1k. Traders were panicked last week when blocks moved lower to correct the block/barrel spread. They were almost equally encouraged yesterday when blocks moved up more than barrels to keep moving toward a “normal” historical spread.

The technicals have flipped to buy signals almost across the technical board, though there should be some caution that this has occurred on light volume, but it also fits with expected seasonal timing.  Regardless, with GDT out today and the milk production report tomorrow, we expect Class III upside to be limited to .20/cwt or .30/cwt on more CME spot buying. As for that milk production report, we’re looking for it to come in just shy of a 2 percent increase for both the 23-state and total U.S. numbers.

Corn and wheat prices were able to shake the softer soybean market yesterday amid strong ongoing harvest progress. The past two weeks decline on the corn market has seen not only strong export sales numbers but also a strong ethanol margin returning to the market. This seems likely to increase demand sharply, despite the trend from USDA holding true in the October report we would expect a major shift heading towards November. We tend to expect stronger yield results and softening demand as we trudge through October. But, for now, we would say the market is still range bound, albeit a very large range, from $5.80 to $7.00

Harvest progress reported after the close showed bean harvest at 69% completed, slightly behind trade estimates, and corn harvest at 47% completed, slightly stronger than trade expectations.

Overnight, grain prices were trading sharply lower as Chinese data disappointed and led to lower equity markets and spilled into commodity prices. In late evening trading, corn was down 5 to 6, beans were down 17 to 19, meal was off 3 to 5 and wheat was off 3 to 5 as well. Softer equities continued to put pressure on the grains through the night and prices were moving even lower this morning.

We look for corn to open 9 to 11 cents lower and beans to open 25 to 30 lower.

Daily CME spot market prices:

Block cheese: $1.7125 (up 2.25 cents)

Barrel cheese $1.70 (up 1 cent)

Butter: $1.8525 (up 1.75 cents)  

Grade A NFDM: $1.490 (unchanged)

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