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

Class III started on strength Monday morning, but it faded well before spot and we went into the spot session with prices in negative territory on strong volume. When spot was offered right out the gate, prices started to fall swiftly. And, when spot turned negative, futures plunged, ultimately finishing as much as 35 lower on strong volume traded. Open interest was strong as farmers piled into positions as buy side hedges resting were traded into and filled.

People are worried, looking in the rear view mirror that we could repeat last year — an unexpected soaring of prices. Thus, they are being more vigilant in securing protection. But this is not last year! This is 2012. The market is balanced right now or leaning weaker from our perspective. But it is good that end-users are being more vigilant about protecting themselves.

Grain prices were off to the races yesterday. Weather concerns in S. America persist and spec money is still pilling in. It was likely USDA tensions with the report nearing that caused prices to close off their highs.

We look for corn to open 1 to 3 cents lower and for beans to open 6 to 9 lower. 

Daily CME spot market prices:

Block cheese: $1.60 (down 1 cent)

Barrel cheese $1.5875 (down 0.25 cent)

Butter: $1.64 (up 3.5 cents)  

Grade A NFDM: $1.45 (unchanged)

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