More Demand for Cheaper Products.

During the initial two days, the market largely maintained a sideways trajectory for most products. Although there was a somewhat more bearish sentiment, it primarily manifested in reduced bids rather than lower offers. The Global Dairy Trade (GDT) followed the anticipated downward trend, particularly affecting powders, while butter, anhydrous milk fat (AMF), and cheese displayed a somewhat firmer or stable stance. Despite a notable presence of buyers, many seem hesitant or unwilling to engage at the prevailing price levels. The ongoing wait becomes increasingly precarious for both sides of the market, given the multitude of factors supporting both bullish and bearish outcomes for most products.

Today's GDT results underscore the prevailing bearish expectations, especially in the powder market on the global stage. Skimmed milk powder (SMP) prices were down by over 5%, and whole milk powder (WMP) prices dropped by almost 3%. The fats market, with AMF on the rise and butter declining, has demonstrated resilience, aligning with sentiments observed in the US and EU.

While the butter price in the EU is lingering around € 6000, this strong resistance level seems challenging to overcome before the EU milkflush. Fundamentally, signs increasingly suggest a looming shortage in the latter part of the year. The argument for lower butter prices, driven by increased milk supply, holds merit. However, arguments favouring higher butter prices, such as reduced starting stocks, lower production in the initial months, a similar pattern in the US,  a shift of more milk towards cheese, and challenges in one of the EU's major butter-producing countries (Ireland), appear more compelling.

Analyzing the GDT result for cheese reveals a significant upward correction. Although New Zealand cheese remains a strong competitor in the global market, potentially impacting EU market share, the EU cheese market has shown remarkable resilience. Despite fierce global competition, Gouda and Edam prices have not experienced downward pressure, suggesting stability. The EU cheese market, surprisingly steady for months, seems poised to continue defying market expectations.

Conversely, the sharp decline in powder prices reflects the recent sentiment in the EU. With increased pressure due to lower skim milk concentrate (SMC) prices, expectations of further price decreases persist. EU powder is losing appeal for exports, coupled with low internal demand. Fundamentally, the powder market parallels the butter market, featuring low production, low stocks, but in addition also exceptionally low demand. If SMC prices continue to decline, a more pronounced correction in the SMP market, with prices potentially reaching €2200/€2300, would not be unexpected in the coming days.

Overall our market outlook hasn't changed much since the last time we made some predictions. We still see a stable to more bullish butter market, we see a stable cheese market and we would still expect to see a more bearish powder market.