Euco-Let’s Meet Week

After a long period of rangebound trading, the dairy commodity market finally broke out of its (boring) range last week. Although boring might be good for some partners in the industry, we find that returned volatility also brings back joy and excitement for others. With almost all prices breaking out in an upward motion, the real winners in the end are the EU farmers, who should (and will) get paid a significantly higher price for their hard labor. With a bank holiday this Monday and some traveling days for many partners to Bordeaux, we expect the first half of the week to be quiet and calm, though we anticipate more activity in the latter part of the week.

We will be traveling to Bordeaux as well to meet up with partners and friends. In addition, we hope to meet new people and make new friends. Those who read our daily digest but haven't met with us in person, please give us a pull and let's connect. Send a quick text to +31 6 57285487.

We are not only looking forward to connecting and meeting with industry partners but also to discussing and learning about the market. We expect that the presentations and panel discussions will provide new insights into what has happened over the first few months of this year. Most partners will be looking for information on what to expect for the rest of the year. What is the forecast for milk production in the EU for the rest of this year? Will we learn more about the situation in Ireland? What do our partners expect from the effects of the Olympics, the situation on exports, and the changing political climate regarding dairy farmers? There is a lot to learn, and we are ready.

Liquids: Tighter and Higher

Looking back on last week, we saw the spot market for liquids getting a lot tighter. From what we can see now, it seems the EU milk peak won't be as good as forecasted, causing sellers to revise their strategy. At the end of last week, we heard from partners about the spot market for raw milk, with prices up to 49ct DAP Italy. Cream prices also reached new highs, with prices up to €7,450 DAP. One of our partners who trade a lot of liquids even told us cream prices of well over €8,000 are paid for the summer period (Q3). SMC traded back well over €2,000, and we hear prices up to €2,150. SMC prices have now bounced back 100% since their low roughly a month ago. The latest numbers we heard on milk collection indicate that Germany is down 0.7% YoY, and France is down 1.3% YoY. With the two biggest milk producers in the EU down this much, combined with the slow start of the Irish season, we have a hard time predicting a YoY increase for the EU in 2024.

The expectations from most of our partners who trade a lot of liquids are that the market might get more expensive and tighter. Most seem to think the EU milk peak is behind us and we will get seasonally less milk. Last week, the industry that producers a lot of fresh products clearly showed more demand for supply; if a normal seasonal trend continues, the demand side of the market will get stronger while the supply side will decline. However, some expect the milk peak to be smaller but last longer, pushing out more milk in the end. Let's see how many partners at Eucolait think the same.

GDT to Kick off the Party

But the first big event this week is Tuesday's GDT. Looking at the futures, it seems those trading futures expect a more bearish outcome. But futures have been wrong in the past few events, and just judging from our market sense, it feels they might be wrong again. We would expect to see the fat side of the market steady to firm. AMF futures look pretty flat, but butter futures point towards a bigger decline. However, we would expect EU butter to trade higher compared to the previous event, and NZ butter could follow in its path. Where futures clearly indicate a decline, we would forecast a flat to slightly more bullish end result, especially with EEX and CME prices rising as well.

SMP futures are pointing up, and here we are also a bit more optimistic. Looking at EEX and CME prices, we are more bullish on SMP prices, although we have to admit that demand from China and SE Asia is still hard to find. Some partners have been reporting more demand for inquiries, suggesting buyers are ready to buy again. But looking at the EU and US prices, NZ might be the cheapest source on the market, and buyers might push prices up towards $2,700 in this event.

Overall, we think the event can be bullish, although a real price explosion is unlikely. The result will impact the sentiment at Eucolait, we think. A bearish outcome might temper expectations, while a bullish outcome might add fuel to an already heated market.