Class III futures really took off last week with March climbing to $17.44 and April moving up to $17.10 by last Friday. The momentum continued Monday, as March was up 75 cents to $18.19. April jumped 59 cents to $17.69, and May moved up 50 cents to $17.25. There was more life in the market Tuesday as March, April, May, and June moved up 25,43,39, and 25 cents, respectively, to $18.44, $18.12, $17.64, and $16.99.

Yesterday, Class III future backed off some. March was down 34 cents to $18.10. April was off 27 cents to $17.85. All other months in 2011 were down 18 cents or less.

These still are lofty numbers that have sent some producers to their co-op or broker to take a position on some of their milk, if they hadn't already done so. At the close of business yesterday, February through December Class III futures averaged almost $17 . . . $16.91. This compares to a February through December Class III average of $16.39 less than two weeks ago on January 21.

Part of yesterday's slide may have been due to the Dairy Product report that came out Tuesday afternoon. December cheese production was up 4.7 percent compared to a year ago. We have been running more than 1 billion pounds of cheese in storage and, in today's economy, the December output will only further build up that inventory. Also, production of American cheese in December, including price-setting Cheddar, was up 4.9 percent.

Given strong milk production and dairy product production, it is interesting to speculate on what is driving our markets. Certainly, exports are up dramatically compared to a year ago. Also, corn prices continue to soar, casting doubt on how strong milk production per cow will be in the months ahead. But we continue to have a slug of heifers on hand. On January 1, there were 4.56 million dairy heifers in the U.S. (500 pounds or larger). That compares to 4.53 million a year ago, and it was the largest heifer inventory since 1986.