Liquid Pressure felt on Commodity Markets

Yesterday was an active day in our dairy market. With more milk available on the spot market, the pressure on factories to produce more commodities increases, thereby adding strain to the fixed commodity market. Even the Easter demand seems insufficient to alleviate the market pressure, and we observe a significant decline in the prices of skimmed milk powder and butter. The question now is whether we will return to prices from earlier this year or if the market is more robust than some currently believe.

The anticipation of increased milk supply and the resulting pressure on manufacturers was expected. But even as we speak with manufacturers today, they seem unconcerned about the additional milk supply, attributing their confidence to strong demand and forward contracts. However, some of our partners are speculating on increased pressure and lower prices.

Looking at the spot market for liquid products, we see a decline in prices for cream, hovering around €6700, slightly lower than last week's market. Raw milk in Western Europe is now below €0.40. Prices for Skimmed Milk Concentrate (SMC) are further dropping, ranging between €1750 and €1800. These low prices seem to have the most impact on the feed market for Skimmed Milk Powder (SMP), with prices as low as €2200 for Q2. Looking at the market we see sellers for SMP at

• 200mt eastern EU non standerdized smp at € 2350
• 144mt of western EU non standerdized smp at € 2490
• 300mt of Solarec smp for Q2 at € 2500

Cheese remains a stable factor in the current market, with trades still around €4000, showing no signs of pressure. Mozzarella prices also hold steady at €3650-€3700. However, reports indicate that cheddar sellers are facing difficulties. While demand in Europe appears steady, the demand outside the EU is primarily being met by the US and New Zealand.

The butter market took a significant downturn yesterday. Prices, which were trading around €5950 in the past few days, now seem to take a substantial dive to €5700. Yet, these price changes do not appear to originate from the producer's side. It seems more like traders are preparing for a market that could come under significant pressure. So far, we see little pressure from Ireland and Western Europe. Lower prices seem to be coming from the producer side only in Eastern Europe. We would expect to have sellers for

• 6 trucks of NL/DE/BE fresh/frozen for Q2 at € 5750
• 6 trucks of Irish fresh/frozen for Q2 at € 5750
• 6 trucks of LW Spec for March at € 5750 FCA NL
• 2 trucks of Portuguese Lactic butter at € 5950

It appears that seasonal pressure is poised to exert some influence on commodity prices in the coming weeks. Many buyers who have waited in recent weeks may be pleased with their decision. However, we want to caution that market fundamentals for the entire year are anything but weak. Low inventories, coupled with increased export opportunities if our internal EU prices decline, could lead to shortages in the second half of the year. Picking the right purchasing strategy now seems to be the best thing to do.