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

Class III futures and options volume seemingly dried up yesterday. Prices firmed early and then moderated into a mixed and choppy trade post spot. Sentiment seems to be that the cheese price break is winding down. Reports on domestic demand for fresh cheese from sources are strong for now.

Last night, Congress voted in favor of a free-trade agreement with S. Korea, Panama and Columbia. S. Korea this year has been a top export destination for U.S. cheese. Also, there are reports that progress is being made in regards to Mexican tariffs.

Cheese futures continued good trading volumes, even as Class III tapered off. Prices yesterday were mostly slightly lower with January a stand out slight gainer. We look for an uptrend here today on more good volume. 

In the grains, prices opened with weakness in corn and especially wheat and for a good portion of the day it looked as though the bearish wheat market would drag corn and soybeans lower but late in the day prices staged a very sharp rally, especially on corn and the last trade was just ¼ cent lower though settlement showed down 4.25 cents at 640.75. Beans turned higher, closing up 4 on the day at 1239.5 and wheat stayed soft closing down 34 cents at 626.75.

We were really expected to see the USDA make more changes in yesterday’s “Crop Production” report, but perhaps the yield reports over the last two weeks and impact of lower prices on demand over that same period are too recent to have been priced in. We tend to believe that production levels will only increase from the 148.1 projected on corn and 41.5 on soybeans. Though there was fear of a reduced yield, we hold firm that it is likely stronger than stated, based on reported yields thus far.

We are moderately bearish in the short and medium terms following this report, and the next move be it up or down will likely be based upon how sustained Chinese demand is, given the now 80-cent rally from recent lows. We think it won’t hold up.  For now, however, the forest has cleared a bit for grain buyers in terms of news, but they are far from out of the woods.

Daily CME spot market prices:

Block cheese: $1.68 (down 2 cents)

Barrel cheese $1.73 (up 1 cent)

Butter: $1.82 (up 2 cents)  

Grade A NFDM: $1.490 (unchanged)

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