Markets Heating Up

This week began with a bullish tone, but it's quickly escalating into a market that's on fire. Initially, we considered describing the market as "overheating," which might imply an imminent price drop. However, current indicators suggest we're at the early stages of a significant rally. The combination of low stocks, declining supply, and an unexpectedly strong demand is setting the stage for a rally reminiscent of 2021. These signals have been present throughout Q2 and early Q3, but many overlooked or dismissed them. As the year progresses, we're witnessing a market with the potential to not just meet but exceed previous records. The European spot market for liquids is tightening, and the recent Global Dairy Trade (GDT) results confirm that this is a global issue, not just a European one.

Admittedly, we've rewritten this update several times. We understand that our reports are sometimes perceived as one-sided or overly bullish. However, when considering the counterarguments, the only potential cooling factor we see is demand destruction due to high prices. While we agree that elevated prices can suppress demand, we expect this impact to be delayed until after the holiday season. Although there's talk of higher prices boosting production, we believe any increase in milk supply will not materialize for another 2-4 months, likely not until a few months into the new year.

EU Spot Market for Liquids: Low Availability

As noted in our previous updates, the market appears to be holding significantly less stock than usual for this time of year. High financing and storage costs are making it unattractive to hold large inventories. With current low stocks and robust demand, the need for raw materials is stronger than usual. Milk collections in France, Germany, the Netherlands, and Belgium are down compared to previous years, further disrupting the supply-demand balance. We’ve observed upward trends in prices, with Skimmed Milk Concentrate (SMC) reported between €2,250 and €2,300. Cream prices are surging even more, with figures of €9,450 and €9,500 reported by day’s end, up from €200 lower earlier in the day. From now on, each new trade could set a fresh all-time high for cream prices.

GDT: Fats Remain Firm

The GDT added fuel to the already bullish sentiment with a 5.5% increase, exceeding even our bullish expectations. This was the largest jump in recent months, despite the event offering more volume than the previous one. Anhydrous Milk Fat (AMF) and butter outperformed futures forecasts, with AMF up 4.7% and butter up 3.7%. The global market's focus seems to be shifting towards New Zealand, as the once steep backwardation of two months ago now shows only a modest €350 difference. Whole Milk Powder (WMP) and Mozzarella also posted strong gains, with Mozzarella up 5% and WMP up 7.1%, reflecting strong demand for fat.

Even the Skim Milk Powder (SMP) market is beginning to catch some of this bullish momentum. Prices are clearly up compared to previous events, and based on our post-GDT conversations, the bearish sentiment seems to be shifting a bit towards a more balanced or even more positive sentiment.

Butter: Breaking Records

Butter prices are closely following cream’s surge—or perhaps it’s cream that’s rising due to the demand for butter. September butter traded via our platform at €7,575, and for Q4, we’ve seen trades at €7,750 for German-origin butter. Some partners are even reporting sales above €8,000 DAP customer. It appears the butter market is also setting new all-time highs with no ceiling in sight.

Producers are facing a dilemma. Cream offers the best return, so selling it unprocessed makes sense. However, they’re also aware of their customers' urgent need for butter, though these customers are not yet willing to accept the high prices. Not producing butter risks losing customers, but the economic logic of selling cream instead is hard to ignore without buyer confirmation. This results in them pushing hard on their customers to accept higher prices.

End users, on the other hand, feel the pressure from sellers to accept these prices. One partner mentioned that this pressure is actually deterring him from buying, as the offers are far from favourable. We empathize with these dilemmas and can only advise: “Sell what you have, buy what you need—nothing more, nothing less.”

We have Buyers for:

• 4 loads of Irish Lactic Butter for September at €7,500 FCA Ireland
• 9 loads of NL/DE/BE fresh for Q4 at €7,550
• 4 loads of Fresh Friesland Campina Lactic for October at €7,600
• 2 loads of Fresh Solarec Butter for September at €7,500
• 4 loads of Polish Sweet Cream Butter for September at €7,500

We have Sellers for:

• 4 loads of NL/DE/BE fresh/frozen for September at €7,700
• 2 loads of Solarec fresh for early September at €7,900
• 6 loads of NL/DE/BE fresh/frozen for Q4 at €7,850
• 4 loads of Irish Lactic for September at €7,600 FCA Ireland
• 2 loads of Arla DK for September at €7,650

Cheese: Market Rallies Driven by Cheese Chasers

The cheese market is rallying nearly as quickly as the butter market. While we’re still below all-time high prices, the current surge reminds us of the 2021/2022 rally. Producers report being oversold and are cautiously offering products for future delivery. With many Edam, Gouda, and Mozzarella producers located in regions affected by the bluetongue virus, there’s growing concern among traders about the availability of standard allocation volumes. Some are turning to futures markets for hedging, pushing up prices for Mozzarella, Gouda, and Cheddar.

We managed to trade Gouda for August at €4,150 and for September at €4,250, but offers dried up faster than we could meet demand. We’re starting the day with very limited offers.

Available offers:

• 2 trucks of Gouda for September at €4,450 FCA NL/DE
• 6 trucks of Gouda for Q4 at €4,650 FCA NL/DE
• 3 trucks of Mozzarella for Q4 at €4,650 FCA NL/DE/BE

Most recent Bids:

• 2 trucks of Gouda for September at €4,250 FCA NL/DE
• 6 trucks of Gouda for Q4 at €4,450 FCA NL/DE
• 3 trucks of Mozzarella for Q4 at €4,350 FCA NL/DE/BE

Powders: Are Prices Finally Peaking?

Powder traders might be looking with some envy at their colleagues in butter and cheese. While volatility, activity, and visibility are high in those markets, powders have been relatively rangebound. However, after discussions with partners today, there’s a growing sense that these dull times might be coming to an end. With higher demand for SMC, optimism is creeping back into the market, with an eye toward higher prices.

Offers:

• 100MT NL SMP non-standardized with 37% protein at €2,600 ex NL for September
• 200MT Solarec SMP medium heat, fresh for September at €2,500 FCA BE
• 200MT French SMP medium heat, fresh for September at €2,460 FCA FR
• 100MT Belgian SMP medium heat, fresh for September at €2,350 FCA BE

Additional FCMP Offers:

• 2 loads Arla FCMP Regular 26% for September at €4,300/t exw NL (max 3 months old)
• 2 loads Lakeland (Artigarvan - Northern Ireland) for September at €4,250/t exw NL (May 2024 or fresher)