Bearish Underbellies and Bullish Data

Over the past two days, our market has experienced relatively calm conditions. Butter prices appear to hover just below €6000, and despite attempts by buyers to lower prices, we observe minimal downward movement. Cheese prices have remained stable, and some of our partners report a slight increase in activity. On the powder side, lower market levels seem to attract more buyers than sellers, yet it seems premature to declare a market bottom. Overall, there is a sense that the market is showing signs of stabilization, but the lingering question remains: for how long? The prevailing bearish sentiment appears to be primarily driven by intuition, while data suggests a more bullish market. However, in the dairy industry, rationality does not always triumph over sentiment.

Analyzing the latest milk intake figures from France and Germany, there is cause to believe that supply will not be a significant concern in the coming months. Milk collections have surpassed last year's levels, and favorable weather forecasts contribute to a positive outlook. Similar trends are evident in surrounding countries, though concerns linger about the Irish milk season. Initial indications do not inspire much confidence. The increased milk intake on the continent is reflected in spot milk prices, with SMC prices trading between €1750 (France) and €1900 in Germany. Raw milk prices are trending slightly lower, hovering around or just below 40 cents, with French milk prices available around 35 cents. This week, cream prices appeared to tick up, though reports today suggest lower trades as well, ranging from €6600 to €7000.

With reduced trading activity, we have had more time to discuss the market with our partners. As we analyze additional data, our confidence in the market outlook strengthens, particularly for SMP and Butter. Low stocks and production numbers signal a market that could potentially experience significant upward movement. However, one factor keeping us from certainty is the challenge of being bullish before the EU milk peak given the current farmer margins and milk intake trends.

The most striking thing about the market is that producers are all relaxed, confident prices should go up and not in any hurry to sell. This, just before the start of the milk season, is (according to one of our partners) just arrogant and ignorant. But given the fact that we recognize this same sentiment among a wide group of suppliers, it seems likely that this attitude is justified. Their stocks are low, their oftakes are good and most claim to have sold forward a majority of their forecasted production volumes.

On the buyer's side, we see end users with the same attitude, although we do feel their attitude is a bit less relaxed. But they are equally confident that prices should come down from the current highs. But should the market trend lower in the coming weeks, it provides an additional reason for buyers to exercise caution. Decreasing commodity prices can erode farmer margins, potentially leading to reduced milk production in the second half of the year. The market could face a tighter market, especially considering our current lower stock levels compared to previous years.

Given the current market conditions, predicting the direction of commodities is challenging. While we provided our expectations two days ago, we acknowledge that it only takes a few sellers to push the market down or a few buyers to push it up. Consequently, we advise everyone to trade with caution, recognizing that this market has the potential to pleasantly surprise or induce extreme anxiety.