Jump up in June

Last week the market felt volatile, although in the end most prices haven't really moved up or down a lot. Looking at last week's update we see the bids and offers for cheese and butter might have gone up € 50,- but with wide spreads between the bid and ask. Powder prices feel a bit weaker, but talking to producers we do not see the weakness reflected in their offers. How bullish, bearish or stable the market feels really depends on the counterpart on the other side of the conversation. However, June has started and the timeframe for most partners on the purchases side is narrowing before the summer starts. Last week the "standstill" in the market felt mainly driven by the buyers being on hold, if they push the forward button again, we expect to go back to the bullish trend of the last weeks. 

Looking at the spot market for liquids we can see the milk volumes seasonally declining by looking at the prices paid. Spot milk prices are now on par with the contract prices coops are paying to farmers, cream prices have broker through the € 8000 level and SMC prices keep firm above € 2100. Some suggested that SMC prices were declining, but speaking to most partners on Friday it seems the dip was short. We are not bullish on SMC prices, but it seems the relatively low availability will keep prices well above € 2000,-. We did see the latest number from Germany in terms of milk intake, they seem to contradict our feelings about the market a bit. With 1.1% more milk YoY the German milk peak seems to be extending a bit further into this season.

Historic Trends: Up in June

June tends to be a more expensive month than May. On the advice of one of our partners we were scrolling through some data on www.clal.it we compared quotations on butter, cheese and SMP of the May months vs. the June months. Most countries quote stable to higher prices for June compared to May. The theory behind it seems to confirm the suggestion that buyers are more active in June, securing volumes for Q3 as they prefer to enjoy some free time in the summer. The bigger activity on the buyer's side v.s. the seller's side pushes up the market sentiment. We would expect this year to be no different.

GDT Tuesday: Slightly more Bullish

Looking ahead to what this week brings, we expect the GDT of next Tuesday to maybe put a bit of movement back in the market. The forecast seems a bit the same as for the previous GDT. Powders are forecasted up, fats down. But just speaking to partners active on exports, they seem to be anticipating a milk move-up for powders, and a similar mild move for fats. We would expect all products to trade up between 1 and 3%. We do hear a bit more requests for proposals from the SE Asia region, suggesting that buyers might be willing to step back into the market. We think this might cause a bit of a surprise at the next event.

Butter: Can we let the bull run?

For the butter market, we ask ourselves the question? Is it time for the next bull run? Or does the market hit strong resistance at the € 7000,- mark? Speaking to partners we hear prices well over € 7000 DAP are paid for those in need of winterbutter or specific brands. Cream prices have traded well over € 8000 and we see the offers from producers out of Germany hitting € 6900-€ 7000 levels.

The butter market at the moment is at a point where taking positions is a bit too dangerous for most. Most partners know that if the prices break through the € 7000,- level the way to € 7500 is short and we might even test new all-time highs around the € 8000,- mark. If the market is really as tight as we see it, this is a likely scenario. But most partners we work with have seen the butter market collapse as well once availability picks up and prices can trade quickly back down to € 5000 levels. Those left with stock purchased as € 6800 will not be able to sell a single kilo of butter once the downtrend starts.

We therefor expect the butter market to remain extremely volatile around these levels with big jumps up and down as long as there are no clear indications that stocks are larger than forecasted at this point.

We expect to have sellers for butter at:

• 4 trucks of NL/DE/BE fresh/frozen for June/July at € 6900
• 4 trucks of frozen Polish Sweet Cream for June at € 6500
• 6 trucks of Irish fresh./frozen butter for June/July at € 6850 DAP NL/BE/DE
• 6 trucks of NL/DE/BE fresh/frozen butter for Q4 at € 6875
• 2 trucks of Spanish Butter for September at € 6950
• 1 truck of fresh Sachsenmilk for June at € 6950

Cheese: Enough Cheese, not enough sellers?

We wrote it down as well last week, and at the end of the week it felt a bit more ... touchable. We don't know how to describe it better. But the market for cheese doesn't seem in need of the product, but in need of sellers. Looking at the data, cheese production remains steady, and consumption is ok, but prices have gone up, mainly due to a lack of sellers. Only in mozzarella we see a real difference in demand vs.. supply, pushing prices up over the levels of Gouda. Last week we traded a few trucks of Mozzarella at € 4150 exw equivalent prices for June, while trading Gouda well under this level for June.

It's not that we are not bullish on cheese, but we would expect the price increase to come later in the year. At this stage it seems most of the milk is still flowing to Gouda, Edam, Mozzarella and cheddar at the same pace it did in the previous months, this should not change anything in the supply/demand ratio. Only if butter prices rise up to well above € 7000,- we expect more milk to be diverted from the cheese production towards butter. Looking at the prices for SWC, this hasn't happened yet.

We expect to start the week with

• A seller for 4 trucks of Gouda for June at € 4075 fca NL/DE
• a seller for 4 trucks of Gouda for July/August at € 4200
• a seller for 3 trucks of Mozzarella for June/July at € 4130

P0wders: GDT might surprise the market.

The powder market has been trending a bit lower in the previous weeks after showing some good gains in the week leading up. Especially prices for futures, but also SMP FEED prices gained some momentum That bullish sentiment reversed two weeks ago. The lack of continuous buying activity at higher prices keeps bringing the price back down. But with lack of pressure from producers and smaller and smaller stocks in the market, but floor of the market seems to be moving higher.

With the milk peak behind us, good support on SMC prices and stronger futures on the SGX, we think SMP prices on the GDT might surprise the market and the EU buyers and sellers as well. We are not forecasting a rally, but we would not be surprised to find a bit more sellers at the end of this week for SMP. We start with a bid for

• 300mt Solarec Medium Heat for Q3 at € 2475
• 300mt Solarec Medium Heat for Q4 at € 2525
• 200mt of Polish non-standerdized for July-August at € 2400
• 200mt of French smp medium heat for Q3 at € 2375