Powders recieve another Punch

Yesterday, the market saw some activity again. Butter prices dipped slightly, while powders faced more negative news. With the Global Dairy Trade (GDT) down by 2.8%, the pessimism in the market is gaining momentum. One of our partners observed, "It's the fat side of the market that is paying the farmers." Protein demand is down, and it's uncertain how quickly buyers will return to the market. Adding to the pressure on an already unbalanced market, more sellers are entering the fray.

Analyzing yesterday's GDT results, the -2.8% decline tells us a lot about the market. International markets are bearish, with few positives in sight. Skim Milk Powder (SMP) prices dropped by 4.8%, and when we look at EU product prices, there aren't many positives to be found. Solarec Q2 prices fell to an average of €2310, while the average EU quotation are still above €2400. Arla SMP prices dropped even lower. Some of our partners are even offering prices as low as €2200, but buyers are aiming for prices closer to €2000. These prices might seem too low, reports indicate SMC prices as low as €1400 and lower in Germany, indicating low SMP production possible for those who buy and dry it. The EU will likely need to lower prices again to attract much-needed export business.

Whole Milk Powder (WMP) prices also declined, with a decrease of 4.2%, now well below €3000. In the EU, prices are still being offered well above €3350, but it's unlikely that the EU can maintain these prices for Full Cream Milk Powder (FCMP) much longer. We're overpriced on exports and unlikely to gain any significant traction.

The most positive results can be seen in the butter and Anhydrous Milk Fat (AMF) market. AMF saw an increase of 2.4%, finally creating a logical gap with butter. Although butter prices dipped slightly by 1.4%, the correction was less intense than anticipated by us and futures markets. EU butter from Solarec traded at around €5600, while NZ butter traded significantly higher. Considering the butter market, the EU currently offers the cheapest butter, and we should expect exports to keep the market from correcting much further. We anticipate strong support between €5400 and €5500.

Viewing the GDT results through EU lenses confirms what we've observed for some time. Powders are being pushed down further. Even with New Zealand out of season, the EU struggles to regain much market share due to low and sluggish demand. There are no significant premiums being paid for future contracts, suggesting that this trend could be long-term bearish. Butter continues to demonstrate robust demand, despite low expectations before each event. Cheese appears to be finding a comfortable range to rebound, similar to what we're observing in the EU. Based on today's GDT, our market outlook remains as follows:

• Slightly bullish on butter
• Stable on cheese
• Bearish on powders