Questionable Milk Supply

Yesterday the market started off quite firm with more buyers and fewer sellers. Butter prices traded significantly higher, and speaking to partners other commodities should logically follow. It's not the demand side that is pushing prices up quickly, but its the concern about the milk intake that seems to be pushing prices up. While most end users decided to wait for flush milk to put pressure on prices, those who waited might now be looking at higher offers due to a lack of milk. Yesterday we saw the first buyers enter the party, pushing up prices. A few more might cause the market to rally up quickly!

Looking at the latest numbers on milk intake, it seems western EU countries are facing less milk compared to the year before. Ireland, the UK, France, The Netherlands and Germany, they are now all posting YoY declines. Speaking to partners who are actively trading liquids on the spot market, we learn spot milk, smc and cream are all harder to find. While it's too early to report on prices on a Monday, the first indications are milk above 40ct, cream above € 7100 and SMC prices above € 1800.

The cause of the price drops still is something we need to speculate on. The most heard analysis we keep hearing is that due to warm weather the milk intake started to peak relatively early. This caused the YoY increase seen in many countries But with the milk peak early in the year we see the milk peak is smaller compared to previous years and milk intake is declining earlier and faster. Therefore the forecast of more milk in the EU for 2024, might have to be revised to a bigger deficit.

In our view, this is converting as the EU already entered 2024 with fewer stocks of butter and SMP and even though the milk production peaked a bit in Q1, the production of butter and SMP didn't. Adding all the information together the supply forecast from an EU perspective just got a lot worse.

Butter: More Buyers, Higher Prices, Less Sellers

On the butter side of the market, the effects are best visible. With cream prices rising quickly the offers from the side of producers are drying up quickly. Speaking to several producers they are sold out for May-June and they might only produce extra volumes if the sales price outperforms their cream price. With cream price already above € 7000 we would expect the best offers from producers for May-june to come in between € 6100 and € 6200. In Poland, prices might trade a little lower, but even from the Polish side,  most indications are well above € 6000,-.

But the biggest issue we have is finding sellers in Q3 and Q4. With several buyers now targeting purchases between € 6150 and € 6250, our best offer. now is € 6350 for this period. The availability of winter butter is most concerning as the production of butter from December until March seems to have dropped significantly in Ireland, Germany and the Netherlands. And as there were little buyers willing to pay a premium for winter butter for the months of May until October, it also seemed a lot more butter had been consumed directly as the storing + financing cost did not compensate for the premium paid by buyers for the given periods.

Ok, we agree, that our outlook might be a bit grim, but we have serious concerns about the availability of some producers in the second half of this year. Looking at the buyers/seller balance for the period after June we expect to see serious price increases especially now cream prices are already reaching levels over € 7000 during the milk peak.

We start the day with

• an offer for 4 loads of NL/DE/BE fresh/frozen for May at € 6150
• an offer for 4 loads of Polish Lactic fresh/frozen for May at € 6050
• an offer for 6 loads of NL/DE/BE fresh/frozen for Q4 at € 6400

We expect to have buyers for

• 8 loads of NL/DE/BE fresh/frozen for May/June at € 6025
• 12 loads of NL/DE/BE fresh/frozen for Q3 at € 6125
• 12 loads of NL/DE/BE fresh/forzen for Q4 at € 6200
• 12 loads of Polish Sweet cream, fresh for H2 at € 6100
• 2 loads of Tipperary Sweet Cream, FCA NL for May/June at € 6000
• 12 loads of Irish lactic, FCA NL for Q3 at € 6100

Cheese: Needs to trade higher

We look at the cheese market and we see that demand for Q3 is starting to show. The demand for May/June remains questionable, but we clearly see more partners focussing on Q3 and Q4 purchases. The biggest difficulty we face is getting offers for these periods as most producers still prefer to sell month by month, while buyers now start to prefer to lock in long-term contracts. Speaking to our partners they see more and more buyers buying month per month, or even week by week. And while they still manage to find their spot loads, the buyers seem less and less comfortable working like that.

Speaking to some, they do seem to realize that they need to be paying a premium to lock in certainty for a few months ahead, but the premium indicated doesn't seem sufficient to pull sellers over the line. Now we are in the milk peak the cheese producers might be under pressure a bit, but they have been able to keep prices flat v.s. the previous months. With better weather, the European Football Cup and the Olympics in front of us we expect to see stronger demand for the months of June until August. Combined with lower milk intake and strong demand for liquids, we would expect cheese prices to firm up a bit. We see no sellers for Cheese as the moment as most partners we speak to are on the buy side.

Although the bids we got did not improve a lot, we do think our buyers are open for offers to discuss the possibilities.

• a buyer for Gouda for Q3 for 9 trucks at € 3830
• a buyer for 9 trucks of Mozzarella for Q3 at € 3530 (german)
• a buyer for 12 trucks of cheddar curd for H2 at € 4000 DAP NL

Powders: Without Increased Demand, No Increased Prices

The powder market is just as bullish as the cheese and the butter market in our opinion, only it lacks buyers who cant postpone. Where end users for butter and cheese seem to be buying hand to mouth, buyers for SMP seem to be buying dips, only to wait out small rallies. We do see a strong fundament under the market at prices around € 2300. Those who look for buyers in May/June might find bids slightly lower, but in Q3 and Q4 we see that most partners realize that locking in stock at these prices isn't almost without risk.

The worldwide trend on futures is a lot firmer than the physical market would let us believe. EEX and CME prices are trending higher and higher, but the increase still isn't followed by physical trades (as far as we see and hear). But we do understand the underlying sentiment that we can see on futures. Production and stocks are lower compared to previous years and with milk production questionable the market only needs a few big buyers to step up and prices might increase a few hundred euros easily. But until that moment arrives, we expect the market to trade sideways in a range between € 2250 and € 2400.

We have the following market for you.

• a buyer for 150mt of SMP Medium Heat, French origin for July at € 2300
• a buyer for 200mt of SMP non-standardised EU15 for July/August at € 2300 (35% protein minimum)
• a buyer for 300mt of SMP BC spec in BigBags at € 2375 for Q3 and € 2425 for Q4
• a buyer for 450mt of SMP Medium Heat, Solarec product at € 2525 for Q4

We have sellers for

• 96mt of SMP, BigBags, Chocolat spec for May collection at € 2400
• 100mt of SMP, Non-standardised, Polish origin at € 2400
• 140mt of SMP, non-standardised, UK/NI Origin, FCA NL at € 2380
• 150mt of SMP, medium heat, Belgium origin at € 2350 for July
• 150mt of SMP, medium heat, Irish origin at € 2350 for May/June