Higher Prices, But Buyers Keep Resisting

Yesterday was again a very active day where butter again took the lead. Prices for all products are in the lift, but butter is clearly in the lead. We do see strong resistance from buyers at the higher levels and there are concerns that these prices will kill demand. And although we believe in the saying, the best remedy for high prices is high prices, we think it will take at least a few extra months before the higher prices will be corrected down. 

There are two reasons why high prices are a good remedy against high prices. First of all the higher sales prices discourage consumers from buying. Consumers can only spend their Euro once, so if prices for butter, cheese, cookies or ice cream get too expensive, demand fades. However, it will take several months before the prices paid by the EU end users reach the consumers. Most prices are set until the end of the year in retail contracts. So the relatively low prices we have today will not lead to decreased demand soon.

The other reason that high prices cause prices to drop in time is the effect they have on the milk price. With the current market levels coops should already be able to pay farmers a farm price of 50ct or higher. If prices continue to rise, this price will increase further. But the effects on the milk price usually show a 3-6 months delay. So even if coops manage to increase their milk price within three months, the effects on milk production will only be felt toward the end of this year.

For now, most commodities are still in upward momentum, which could potentially get an extra boost next week when the entire EU dairy industry assembles in Bordeaux at the General Assembly at the Eucolait. We will be there as well, wearing our bulletproof vest and helmet as we expect to find some hostile partners that don't seem to agree with our market analysis ;).  However, it feels the market could get another kick upward as the venue might act as a boiler room, putting a catalyst under the already bullish sentiment.

We still see (and hear) partners postponing purchases, or only buying what they need for closeby, offers for Q3 and Q4 are still seen as too expensive. Our mother always told us that if something needs to be done, do it directly, as there is a saying that translates as "procrastination leads to cancellation". This might be true for those who want to start working out (me) or go on a diet (me) or drink less (me) , but not for those who need to buy commodities. If you have a product to sell (long) you can decide to keep the goods a bit longer until the right price comes along. But for those who need to buy, they can't postpone. You can't make a Pizza without Mozzarella, a Croissant without butter or deserts without the right dairy ingredients. We therefore think that all purchase managers that postpone their purchase decision this week, will have to rethink their strategy the next week again. Because in this tight market, the longer you wait, the tighter the market will get, and the higher the price will get.

Butter: Higher Highs

The butter market continued its bullish rally. With EEX future levels hitting € 6650 for Q3 we are now officially closer to € 7000 than we are to € 6000. We have seen Irish butter trade up to € 6425 for Q3 and NL/DE/BE we hear as high as € 6550. Polish butter is lagging a bit, but at € 6300 we hear deals for June are done. For June we have seen the highest trade for Danish butter at € 6425. At these high levels we see buyers taking a break, but we haven't seen sellers come down again.

We start the day with offers as follows:

• 6 trucks NL/DE/BE fresh/frozen for Q3 at € 6550
• 2 trucks NL/DE/BE fresh/frozen for June at € 6450
• 5 trucks of Irish Sweet Cream butter for July at € 6400 FCA NL

Cheese: Higher trades, but hesitant buyers.

The cheese market is coming back to live a bit. We hear Mozzaralla prices for May at € 3850 done via our friends at NUI and we see more demand across the entire cheese spectrum. But sellers have seen the butter rally and do not want to burn their hands on sales for further out. We did see a few more traders coming to the market with offers well over € 4000 for most product, but our buyers have not engaged yet. The best offers we have are:

• 3 trucks of NL/DE Gouda for Q3 at € 4150
• 9 trucks of NL/DE/DK Mozzarella for Q3 at € 3890

Powders: If you are silent, you can hear the market firm!

In line with the butter and cheese market, the powder market is starting to firm as well. But where the rally in the butter market is caused by increased demand, for SMP we mainly see the offers dry up, and that what is left is available at higher prices. We hear our partners are selling again codex for further out above € 2500,- and we see more and more buyers upping their bids for Q3 and Q4 in line with EEX futures.

We have buyers for

• 300mt Solarec SMP medium heat for Q3 at € 2400
• 300mt Solarec SMP medium heat for Q4 at € 2500