Swinging In Bordeaux

Last week a big part of the EU dairy trade and other dairy professionals joined together in Bordeaux to meet up, discuss and reconnect. It was one of the busiest events we have attended from the Eucolait since we started attending. While the French will say it was because everyone loves visiting Bordeaux we doubt that was the reason (although we did love visiting).  While we enjoyed the reception at the Palais and loved to witness the arrival of the Olympic flame, we think the crowd gathered for a different reason. In such uncertain markets, more people seem to be looking for information, and what better place to find it than at the Eucolait?

The first thing we noticed after the first evening and the early morning meetings on Thursday was the bullish sentiment among producers and traders. Although we had been bullish ourselves, it was strange to have so many people agree with us. It almost felt a bit too bullish, to be honest. However the data showed by the analysts and speakers continue to confirm our bullish expectations as we clearly see a bullish trend. The producers we spoke to seemed worried about the milk intake in Ireland, but also in other countries on the continent. Their remarks felt honest as they explained their inability to offer a lot of volumes for the coming months. We did place a side note last week, as one of the least bullish things we saw was a large group of traders eager to cash in on their long positions, causing us to doubt the continuation of the bull run.

Thursday evening a big group of dairy enthusiast went out in to the town of bordeaux, looking to blow of some steam. As usual, the Polish delegation led the way by swinging on the dancefloor, and seducing in the other delegations to join them on the dancefloor. The Irish delegation managed to inspire the drinkers and the Dutch inspired the group to be loud. We found ourselves surrounded not only by dairy professionals, but also by some inspiring dancers. After a long evening and a short night, the dairy market came together on Friday for a final day of networking and sharing information.

The overall fundamental information did not really change, but we did see s short change in sentiment. The swings in price for some commodities last Friday were almost equally impressive as the swings made the evening before by some partners on the dancefloor. With butter prices correcting almost € 400 between 11:00 and 14:00, we saw them trade back towards the same prices as the day before and the hours after. SMP prices also seemed to be correcting down, all while SMC prices kept hitting year-high prices. Its the lack of buyers that is keeping the SMP market from breaking out. This week we wonder what type of music will be playing in the dairy market and what way prices will swing to.

Butter: Nearing Dangerous Highs

The butter market has been running up for a few weeks now, but it's getting to levels that could be dangerous. Although our beliefs are still that butter will trade well above € 7000 in the next months, we do recon that we are closer to the top, than we are to the bottom of the market (although some argue that as there is no set limit for butter prices we are by default closer to the bottom than we are to the top). So with almost every trader keeping a profitable long position, we saw a few partners taking some profits on earlier taken positions. But with most buyers on standby, it was hard to find buyers, leading to more sellers, fewer buyers and lower prices. During the day butter prices (for NL/DE/BE) traded as low as € 6400 just after lunch, only to trade back up to € 6700 at the end of the day. It seemed that buyers on lower levels were easier to find than expected.

This will be the first "normal" week again without bank holidays and activity-impacting events. Speaking on Friday with the liquid traders and analysts, its seems to be expected that spot prices for liquids will continue to trade higher. If true, we expect the bull-run that found a halt on Friday, to continue this week as soon as dynamics for the spot market for liquids get out.Prices for cream deliveries for Q3 and Q4 already traded well above € 8400,-, they spot market needs another € 500-€600 mt to get to these levels.

For now we expect to start with:

• a buyer for 6 trucks of NL/DE/BE fresh for Q4 at € 6750
• a buyer for 5 trucks of NL/DE/BE fresh/frozen for June at € 6500
• a buyer for 4 trucks of Polish Lactic (Lumimko) for June at € 6420
• a buyer for 6 trucks of Irish Lactic butter FCA NL for Q3 at € 6375

We have sellers for:

• a seller for 6 trucks of NL/DE/BE fresh/frozen for Q4 at € 6800
• a seller for 6 trucks of NL/DE/BE fresh/frozen for Q3 at € 6725
• a seller for 5 trucks of Italian butter, frozen for June at € 6300 DAP NL
• a seller for 4 trucks of Polish Sweet Cream for June at € 6550

Cheese: Up and..... not away yet

The cheese market clearly moved up over the last two weeks. Gouda prices for Q3 rose to levels of € 4150,- and for June we hear prices as high as € 3990,-. Mozzaralla prices traded just below € 4000,- it is hard to find additional volumes.... at reasonable levels. It seems that cheese buyers are (unlike butter buyers) less convinced that they have missed the boat and they will face a continuous bull run. So far the details we have for cheese, aren't as bullish as the data we see for butter. But with high fat prices, our logic remains that cheese prices should (and did) follow the direction of the butter market. And while butter went from € 5200,- in February up to € 6800 last week, the cheese price has increased from € 3800 only to € 4150.

We do see buyers who are looking for:

• 6 trucks of Gouda for Q3 at € 4100
• 6 trucks of Mozzarella for Q3 at € 3900
• 6 trucks of Edam for Q3 at € 4000

We do have sellers

• 4 trucks of Gouda for July / August at € 4200,-
• 4 trucks of Mozzarella EU15 for July at € 4000

Powders: Strong resistance once prices sour.

On the Eucolait it seemed most of our partners found some energy again now the commodity markets are back with a bit of volatility again. Those who trade butter are maybe even a bit overheated and those trading cheese finally have some price movement again after 6 boring weeks. But those responsible for the powder market were...  less energetic. And although it doesn't really suit their personalities, their forecast/outlook isn't very energetic either. One of our partners said it best.

"Every month I get on the edge of my seat, thinking that now the market will get active again. But after a € 100,- price increase most buyers step back out and we see sellers back in the market. We have had this market for already 18 months, and if nothing changes it feels we will have it for another 18."

The market fundamentals without the demand side look bullish enough to pull the market up a couple of hundred euro's easily. But you just cant ignore the low demand. We did hear some partners at Eucolait bring op more demand for fatfilled and that the EU is starting to get more competitive again. But the outlook during one of the presentations about China wasn't very optimistic in terms of returning Chinese demand (the biggest driver behind the demand last year). We need either China to return or we need to find a new China.

We expect to start the day with:

• 200mt French BigBags FCA France for prompt collection at € 2400
• 200mt wester EU smp for June/July at € 2450
• 200mt Ukraine SMP at € 2450,- for June (35% protein)