Scared Buyers and Opportunistic Sellers

Yesterday, the market sustained its bullish momentum. While butter prices showed some stabilization, cheese prices continued to surge to new highs. The very tight spot market for liquids has led sellers to withdraw, while buyers scramble to secure the remaining low offers. The rapid price increases are pushing some buyers into a state of panic, unable to keep up with the escalating offers. What's particularly surprising is the significant volume of inquiries from industry players still needing to cover substantial portions of their Q4 requirements. Meanwhile, sellers who managed to retain some extra stock are offering it at highly opportunistic prices, aiming to capitalize on what is shaping up to be a challenging year.

Following a bullish GDT on Tuesday, the EU liquid spot market took centre stage today. Cream prices have risen to an average of €9,500, with late-day bids between €9,600 and €9,700 FCA. Initial offers at €10,000 have appeared, though we haven't yet seen any confirmations. As mentioned earlier this week, reaching the €10,000 mark seems more a matter of days than weeks. While the current cream market may be overheating, bids for Q4 at €9,400 suggest that a sharp decrease is unlikely.

SMC prices are also on the rise, albeit less dramatically than cream, with most quotes between €2,300 and €2,350. Raw milk prices, meanwhile, are hovering around 55 cents, with Q4 bids at 60 cents DAP.

The outlook for milk supply in H2 is a topic of debate. Factors such as bluetongue and poor grass conditions following a wet spring have increased feed costs, making it less attractive for farmers to boost milk production at this time. Depending on how quickly suppliers can raise milk prices, a swift increase in output seems unlikely. Opinions on the bluetongue situation vary, with some downplaying its impact and others viewing it as a highly bullish factor. Based on initial signals from coops, we anticipate a drop in milk collection and advise buyers not to underestimate the potential spread of the virus.

Strong Q4 Inquiries

Our bullish outlook is reinforced by the significant number of requests for proposals we’re seeing. Not only are major industrial buyers actively seeking offers, but many traders we work with report the same trend. One trader even expressed concern about how many experienced purchase managers have left a large portion of their demand uncovered. The processed cheese and bakery industries are particularly active in seeking offers. Additionally, cheese graters, slicers, and butter repackers are waiting to finalize their retail sales contracts. Once those deals are closed, we expect these buyers to enter the market as well.

Considering all factors, it appears that a perfect storm is brewing. Buyers are likely to return from their vacations over the next two weeks, just as milk collections hit seasonal lows, further pressured by high costs, rising temperatures, and bluetongue. Buyers are questioning how long it will take before demand destruction impacts their offtake. However, discussions with experienced partners suggest that the current price increases won’t affect the consumer market for several weeks if not months. While we understand the strategy from buyers to buy week per week, its this exact tactic that is going to cause the market to increase a bit every day.