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

The pressure continued in both milk and cheese futures yesterday. And spot moved downward, as well, but interestingly left blocks and barrels priced the same with barrels doing much of the work to begin correcting the inversion. We looked for a bounce earlier this week and that has been nothing short of wrong as the market has spent the past two sessions in the red. The full carry mode for Class III — and to a larger extent all dairy products — is still alive and well, which is bearish. 

Commercial buyers have cooled their buying interest over the past few days, but there are still more buy-side hedgers looking for a flat price for 2012 than in most Februarys we’ve experienced. They ought to continue to underpin at current levels.

Producers who have not hedged, or are looking for additional coverage now that prices are trending lower since mid-January, ought to stand on the sidelines for the time being. Get a plan in place, but execute on a rally to sell, which we expect to be over the next two or so weeks.  Markets tend to give you opportunities when you least expect them — especially when the market is heavily tilted to the downside.

Corn futures have consolidated at current levels over the past three or four days. Growing conditions in South America remain challenging as recent showers have been scattered, leaving large areas of dryness and a return to hot temperatures. 

Daily CME spot market prices:

Block cheese: $1.475 (down 0.5 cent)

Barrel cheese $1.475 (down 2.75 cents)

Butter: $1.44 (down 0.5 cent)

Grade A NFDM: $1.335 (up 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., International Assets Holding Corporation, 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.