Clouds Above The Dairy Market

Recent insights might cause some participants to revise their outlook on the market, although there is still plenty of information confirming the bullish outlook. Let’s review them one by one:

Bearish GDT for NZ Start of the Season

Yesterday, the GDT kicked off the first event for the new NZ season. Increased availability immediately showed that the market doesn't really need much more product. With an overall decrease of 6.9%, the event was one of the weakest in recent months. We had expected a bearish outcome, but the results were more bearish than anticipated.

Butter and AMF traded down over 10%, although this wasn't a big surprise. The previous tender had moved prices to $8,800, the highest ever recorded, seemingly caused by a bidding war among a small group of buyers. This time, the need to buy seemed normalized a bit. Still, C1 NZ butter traded around $7,500/€7,000, well above EU levels, and C2 levels at €6,400 don't differ much from the EU market. Meanwhile, EU butter prices traded slightly down compared to the last event, just below €6,600. The next event should give a more realistic picture of the international butter market.

Powder prices took a large hit. We expected SMP prices to correct down after a surprisingly steady result at the last GDT event, but the 6.1% decrease was worse than expected. Looking at EU products, we see prices still traded in line with the last event. Solarec SMP still traded above €2,400 while Arla prices held up well over €2,300. This is still well above some trades we hear for EU products (below €2,300). WMP prices also traded down over 4%, which was in line with market expectations.

Cheddar prices continue to underperform. This comes as a bit of a surprise since we have been hearing from our partners that export demand for cheese was strong.

Overall, the GDT did not perform well, and we think those looking for a reason to wait for lower prices have found a strong argument. Buyers who can still postpone purchases will likely do so based on the results of this tender, especially after the already weak and disappointing result from the ONIL tender last week.

More Milk Expected

Back in the EU, we hear the milk production forecast for the EU is being revised higher. The tight supply and low stocks might be getting some help from farmers who are expected to produce more milk. In recent months, results from Germany and France have been better than expected, and the expectations for the upcoming months are that this strong collection will continue. It seems that, based on these expectations, the big deficit in some products might be resolved quicker than expected.

Spot Liquids Still Look Bullish

But one weak GDT doesn't make a bearish summer. There are still strong arguments for higher prices. Our partners who trade liquids still see an unusually strong liquid market for this time of year. While milk collections might be revised up, the market still knows what it wants to do with it. With raw milk prices between 47ct and 50ct, buyers don't seem worried about paying these prices. Cream prices traded between €7,950 and €8,150 yesterday, well above the butter equivalent, and SMC prices are holding up well above €2,100, which is well above the SMP cost price. So far, the spot market doesn't show any bearish signals.

Tight Supply

More milk might lead to higher commodity production, but so far it hasn't. Those in need of spot volumes, especially butter, still struggle to find cheap products. The market did trade slightly down yesterday, but now bids come in around €6,500 without finding any offers. We see buyers looking to buy cheaper Polish, Irish, or Danish butter but without success. Those in need of BMP need to wait for fresh production, and on Mozzarella, we still see short-term shortages.

If we had to describe the market, we would sum it up as we did in a report last year: "The bears have the expectations, but the bulls still have the facts." We are not saying we are as bullish as we were a few weeks ago, but we would still like to see more confirmation from the bearish side before we are convinced.