Clouds for the Bears, Sunshine for the Bulls!

Yesterday, the market continued its bearish trend, mainly driven by lower prices in the liquid markets. Low demand for fresh products due to wet weather is halting the bullish trend. We see more sellers in the market,  selling off positions, mainly traders but also producers. They seem to be selling some product as their sales slow at higher levels. The lower demand for liquids is creating a bearish sentiment, but if we zoom out, lower commodity prices only reinforce our bullish market view. So how long can the bearish sentiment cover up the bullish fundamentals before prices start to rise again?

We clearly see more availability in the liquid market than expected. Raw milk prices peaked a few weeks ago above 50 cents but are now trending back to levels between 40 and 45 cents, a significant drop. Theories on why raw milk prices are trending lower vary. Some suggest the milk peak might be prolonged, creating more availability in the spot market. Others attribute it to logistic disruptions due to flooding and expensive, difficult transport. However, the most common theory is that the wet and cold spring is causing demand from the fresh industry to start late. But our weather app forecasts warmer and drier weather, so demand might pick up again once the sun returns.

The biggest weakness was expected on the cream side of the market, but we hear various price levels. A common price in East EU is €7600 FCA factory, while in the West, prices range between €7600 and €8000. At the lower end of these prices, producers can make fresh butter at €6400, leading to a slight drop in Eastern EU butter prices. SMC prices show a similar spread, with the lowest price today at €1750 FCA and the highest at €2100 FCA.

The liquids market feels weaker, reflected mainly in raw milk prices. Cream and SMC are trending around the same levels as last week, waiting for demand from the fresh industry to return. The dark clouds in the sky cast a shadow over dairy prices, but there is a Dutch saying: "After Rainfall Comes Sunshine."

Lower Prices Now, Higher Prices Later

We have been discussing the current trend with several of our partners, including producers, traders, and end users. It seems everyone agrees on one thing: lower prices now can lead to higher prices after the summer. The logic behind this theory is:

• Lower commodity prices will stop the milk price from rising, reducing the incentive for farmers to increase milk collection.
• Lower commodity prices will boost exports (EU is among the cheapest in the world market for most products).
• Lower commodity prices boost buyers' confidence to postpone purchasing, pushing demand into a smaller purchase window for the months ahead.
• The extremely wet conditions are creating problems for farmers to plant crops, leading to higher feed prices later in the year.

Butter: Two Steps Down, One Step Up

The butter market is maybe trading down the quickest. With prices three weeks ago peaking at €6800 (and partners selling above €7000), prices are dropping each week. Every time we trade lower, new buyers push prices back up a bit, only for them to fall again a few days later. Yesterday, the market traded down with NL/DE/BE butter hitting prices as low as €6450 and Polish butter as low as €6280. Some traders are de-risking by selling a bit of their long positions while competing with producers who prefer to sell their stocks slightly below their former expectations rather than store and finance products.

We have the following bids:

• 6 loads of Polish butter for June/July at €6200
• 6 loads of NL/DE/BE June/July at €6450
• 2 loads of Mlekovita butter for June/July at €6350
• 4 loads of Spanish butter for July at €6350
• 6 loads of NL/DE/BE butter for Q3 at €6475

The offers are back to higher levels:

• 6 loads of Irish butter June/July at €6650
• 4 loads of Polish butter for June at €6450
• 6 loads of NL/DE/BE butter for Q4 at €6750

Cheese: Slipping Sideways

On the cheese market, there is little news to report. The market is trending sideways to slightly lower with low activity reported by most partners. We have no new insights and start with a similar market.

We start the day with the following offers:

• 1 truck of Ammerland Gouda for prompt at €3950
• 4 trucks of NL/DE Gouda for July/August at €4140
• 4 loads of Mozzarella for July at €4100
• 6 loads of Mozzarella for Q3 at €4150

Powders: Looking for a Buyer in a Haystack

The powder market continues to slip lower and lower. Futures are coming off on the EEX and CME. The worldwide trend is bearish, not due to supply pressure. Our analysis remains the same: it’s not that the world is heavily producing SMP or that there is a lot of old stock lying around. We are all looking for that one buyer in need of the product. With a small trade on SWP at €780 for June, we see a few buyers around.

We expect to start with the same market as yesterday.

• An offer for 300mt Limelco SMP for August at €2375
• An offer for 200mt French SMP for August at €2400
• An offer for 300mt Polish SWP for June/July at €810
• An offer for 300mt UK SMP for June/July at €2400