Anticipating Lower & Fearing Higher Prices

Yesterday was once again a busy day in the dairy sector. With increasing pressure on SMC, we observe the dairy market's protein sector steadily slipping further away. Meanwhile, butter fluctuates without a clear direction, and cheese trades gradually lower. We also hear more frequently that producers are gradually joining in and adjusting to the slowly declining prices.

Just like yesterday, we'll keep the update brief. In the liquid sector, we see a similar pattern as yesterday. Raw milk prices appear to be decreasing less sharply. While last week we saw milk prices drop below 40 cents in the Netherlands and under 35 cents in France, we now see prices back above 40 cents in NL and above 35 cents in France. SMC prices, on the other hand, continue to decline rapidly. Where we saw only cheap SMC prices in France yesterday, we now hear about SMC prices in Germany around €1500. Meanwhile, cream prices seemed to remain stable around €6600 during the day, but by the end of the day, we heard of lower prices, even dipping below €6500.

Butter prices responded somewhat to the fluctuating cream prices, but there's a strong sense that more and more partners see the bottom of the butter market approaching rather than the top. Around €5500, there is a lot of buying interest. We traded yesterday with a wide spread, with Irish butter trading as high as €5850 for March loading and Polish butter as low as €5425. The nervousness in the market mainly indicates that no one has a clear conviction on higher or lower prices. We start the day with buyers for:

• 6 trucks NL/DE/BE fresh/frozen Q2 €5600
• 6 trucks NL/DE/BE fresh/frozen Q3 €5750
• 6 trucks NL/DE/BE fresh/frozen Q4 €5800
• 6 trucks Polish fresh/frozen Q2 €5400

Cheese prices traded sideways, with prices for Gouda and Edam at €3830, and Mozzarella prices under significant pressure. The pressure on cheese still seems highly speculative. The ages of the cheese remain young and producers still are absent from the market.  And despite cheese and whey being above the valuation of SMP and butter for months, overproduction still doesn't seem to be an issue.

The primary pricing concern for Gouda revolves around the growing volumes coming from Ireland. The market must adapt to the increased influx of Gouda into the EU market, and this is expected to have an impact. Conversely, due to the elevated valuation of cream, certain producers on the continent appear to be shifting towards producing more Mozzarella and reducing Gouda output, as the returns are significantly higher in the former.

Looking at the powder market, it seems the worst is yet to come. With SMC prices continuing to drop, we see lower prices every day. We hear trades at €2230 for fresh powder, and producers are also coming with lower quotes. Some partners are already joking about the intervention bags ready, and some say this even without intending it as a joke. From a fundamental perspective, it seems unlikely; however, we do see more and more products entering the market, and almost none leaving. Cash-and-Carry seems absolutely unprofitable now, especially as the premium for further-out dates diminishes, making the front end need to decline further before we can expect an upward trend again.

In summary, the market is still slightly weaker. Butter has remained notably stable this week with three days of relatively comparable prices. Butter seldom stays stable for long, so some more price variation can be expected in the coming days. At the moment, it feels like the expectations of the milk flush are exerting downward pressure on the market, though there doesn't seem to be any real physical pressure (outside the SMC market). If the milk flush of 2024 lives up to its high expectations, dairy prices could indeed drop even further, but if the milk intake falls short, speculators counting on lower prices may need to reconsider their predictions.