Charging the Battery

In the past few months, we have been proudly connecting different buyers and sellers in the dairy commodity markets. But after a 6 months of intense brokering, the summer period usually gives us the time to charge our battery a bit. We have always valued the time with our partners a lot, but the valuable time we have with our family is something we cherish even more. As a small family business-run company we know business never stops. From the early morning feedback on our daily updates starting at 7:00 in the morning to the late trade confirmations after 21:00, we are always there to serve our partners. Writing the updates gives us a lot of satisfaction and we see, read and appreciate all the feedback we get on a (almost) daily basis, positive and negative. But during the summer months, our (Wouter en Kim) focus will turn away from the dairy market and we will be enjoying the time among each other with our 5-year-old son Ollie and our 6-month-old daughter Lina. From the 19th of August, we will be back with our updates, market views and opinions. Until then we leave you in the capable hands of our partner Linda den Ruyter reachable via linda@getfairdairy.nl or via +31 6 20059342

Looking back at the first 6 months of this year we would like to share with you some of the metrics we could find when looking at our books. We have written 97 market reports since the first of January this year. In the last 6 months, we have brokered over 400 contracts between our partners with an average volume per contract of 130mt. We have been connecting 38 different sellers to 50 different buyers and have brokered 17 different product specs.

In total, we have brokered 53.000 mt with a majority trading over butter and SMP. The rest of our volumes traded over Cheese (Gouda/Edam/Mozzarella/Emmantal and Cheddar) some liquids and other milk powders like BMP, FCMP and SWP. In the below table, you can find the complete overview.

Butter	28,685 mt
Cheese	7,365 mt
Powder	17,880 mt

Looking closer at some of the details we see that prices in general slowly moved upward. In the below table coming from our data based on the brokered contracts, we can see the price development in the first six months. Prices since January surged roughly € 1300,- with the biggest hike seen from April to May.

January	€                                  5.224,51
February	€                                  5.596,35
March	€                                  5.694,53
April	€                                  5.831,82
May	€                                  6.429,58
June	€                                  6.558,33

SMP Prices have been trading in a very tight stable range. with the highest average price reached in January and the lowest in May. But with only € 80,- spread between the highest and the lowest average monthly price we think our books reflect the view that the SMP markets have been trading in a stable sideways pattern.

January	€                                  2.416,00
February	€                                  2.388,33
March	€                                  2.405,71
April	€                                  2.335,50
May	€                                  2.330,83
June	€                                  2.395,00

Cheese prices have been trading also within a tight range. Prices have been slowly increasing over the last months although June already seems to be giving back a bit of the price action from may. Looking back at the cheese market our average prices confirm the stable (or even boring) price action we have had complaints about from our partners.

January	€                                  3.918,00
February	€                                  3.925,00
March	€                                  3.935,00
April	€                                  3.836,25
May	€                                  4.138,18
June	€                                  4.075,33

Looking Back: Zooming out gives a more stable view

Calculating the average prices over the last period gave us insights into the price developments over our most discussed products. Our role as broker and market informant is to report about the daily prices we broker. Looking at prices on a daily basis can cause some anxiety. We have seen butter prices trade within a € 600,- price range within a week only to trade back to the starting price a week later. For those active in the market that seems to be the reality, an active volatile market.

But we speak more and more to partners who are not active on a daily basis but appear on the market once or twice a month. Their market experience might be completely opposite to that of someone who is in the market every day. Sometimes zooming out of the market, and not following the daily swings, can give a much more stable and fundamental view of the market. Sometimes the short-term price action is caused by sentimental changes, but the long-term trend usually is set by fundamental data.

By zooming out we can see that protein prices have been slowly but steadily declining. Cheese prices have slowly increased and butter prices have rallied every month a bit. Especially butter prices have been (also by us) painted as extremely volatile. But on an average price basis, we see a much more steady increase.

Looking Forward: Dont follow the daily trend, look for the long-term trend

So with us leaving the market for 6 weeks, we would like to give some final advice. Don't try to read too much into the daily activity. Sometimes strong price changes are caused by sentimental decisions by a few market participants. Especially in quiet times like the summer period decisions taken by a few might have a strong impact in a market without much trading liquidity. But learning from the data we have created in the last 6 months, we would like to suggest looking closer to market data, and less to the daily price action.

The price in the market is determined by the balance between supply and demand. And while it's hard to know the exact demand numbers, we can see from history that dairy demand increases slightly every year. That means that stock levels and production will determine the supply side for the next months. That makes us repeat our view on the dairy commodities for the next 6 months

Butter: Higher Prices

Looking at the butter market we see we started the year with the lowest stocks from the last 10 years. In the first three months, we added less to those stocks than in recent years as well. But in April the production grew and judging from the feedback we hear from our partners it's likely to expect May and June to be equally strong in production numbers. That doesn't take away that we think the butter market is still carrying less stock than normal.

Since the last two weeks, cream prices in the EU have surged and are trending well above the butter equivalent levels. Therefore it seems unlikely that in July (and onwards) butter production will be strong again. We still see a lot of uncovered demand, as buyers expect or hope to find lower prices. We expect that after the summer break demand will flow back to the market and will show the fundamental deficit for fats in Q4, pushing prices back up. But until then, we would not be surprised to see the low activity in the market bring prices back down first.

Cheese: Sideways

The cheese market looks balanced, feels balanced, trades balanced and our partners seem to be expecting a more balanced market. And as we wrote at the end of last year, if it walks like a duck, talks like a duck and quacks like a duck... its probably a boring sideways market. It seems the EU is currently in a place where demand and supply are very in line and we see no reason to expect anything else.

Powders: Poor Performance, Lower Prices

Looking at the powders market we expect the trend of this year to continue and that is very very very slowly down. With the demand from China not picking up (and not expected to pick up) we expect the market to keep performing poorly. The very bullish production fundamentals keep the market stable, but if production can pick up slightly, prices will get under pressure more. With our bullish outlook on butter we would expect butter production to pick up after the summer and so will SMP production. With possible more SMP production and a bearish demand scenario, we can't be anything but bearish for the next months.

This leaves us wishing you the best in making your trading decisions in the next 6 weeks. We hope our colleague Linda will be able to help you with your summer demand and market decisions. Our focus will be fully on our family, and with two kids like we have, we hope no one can blame us. Just look at them! We wish you a happy summer! and happy trading!