Too Bullish? Or Not Bullish Enough?

Yesterday was a relatively quiet day from our side. With some small trades on butter, we see the market trade sideways on all products. A typical GDT day always is quiet and this day was no different. And because the result came in late we expect to have the effects of the result shown tomorrow. In the last few days, we got a bit of pushback from partners on our bullish view of the market. In the last two weeks the market hardly moved up, but our reports keep being bullish. So we asked ourselves the question, are we too bullish? Or are we not even bullish enough?

The GDT traded in line with our expectations, up! The headline result shows a modest increase of 1.7%, but the headline number might not be telling the whole story. Some products have shown some remarkable moves and have very remarkable spreads between months, the EU market and previous events. Let's dive in!

Fats: Overpriced or Undervalued?

On the fat side of the market the headline numbers are +0,9% on AMF and +1,7% on butter. We expected a stronger increase on fats, but looking closer to the details we see something we haven't seen before. Bot AMF and Butter show a big backwardated curve. AMF has a 10% spread between C1 and C6, but the butter curve is even more extreme. With butter prices for C1 and C2 at $ 7500,- we see NZ butter trading above the price for EU butter at $ 7400,- (€ 6800 for Solarec). But the C5 and C6 show a 20% discount at $ 6000,-. The December contract spread EU butter v.s. NZ butter is over € 1000,-. A spread that should close over the months to follow.

International demand for butter seems very strong with CME butter trading at the highest price this year, EEX continues to trade around € 6800 on futures and NZ butter prices have hit their all-time high level. The heavily backwardated curves might seem bearish to some, but clearly indicate a lack of fat for closeby. Buyers might only be willing to pay up to such high prices for closeby, but unless the supply situation changes drastically, we expect the high prices for close by to stay around for many more months. So to answer the question, are we too bullish on fat? we think not! We think the market isn't bullish enough as prices might hit all-time highs in the EU as well in the very short term.

Powders: Griding Up

Looking at the powder side we saw a big headline number for BMP. With an increase of 10% the market is reflecting the lower availability of BMP due to the lower production of butter. We have seen demand for BMP spike a bit and think the move on the GDT is more than justified. Looking at the SMP increase of 3% we feel the move is justified due to steady demand for further out. But looking at the EU prices on the GDT it seems the range of € 2400-€2500 we have been reporting on is confirmed. WMP prices we would have expected a bigger move up although we do see that the price for closeby is higher than for further out. The 1.7% move up reflects the overall sentiment well. To answer the question, are we too bullish on powders? We might be a bit, although we can't see a real bearish scenario as well. But to see the market take of, we do need a significant uptick in demand, we might have been over expecting this a bit.

Cheese: Steady

The cheese market in the EU might have seen a 5%-10% increase in general over the last weeks, a further bullish move seems unlikely. Speaking to those who are closely involved in the market say that demand for cheese has been steadily growing over the past years, and so has the cheese production capacity. Supply and demand are roughly in line and we the this reflected in the GDT results as well. We have been bullish on the cheese market, as we do believe the higher demand for fat should put prices a bit higher. But with supply and demand still in balance, we might have to rethink our bullish stance on cheese as well. Although we believe strong summer demand might push prices a bit further up in June/July/August, a bullish continuation after the summer might be a bit too much.

GFD Markets: A Quick Overview

Normally we would summarize our markets on butter, SMP and cheese, but as we have been caught yesterday on some side tasks, we have a hard time really diving into these markets. We expect to have

• a buyer for fresh German butter for June at € 6675
• a buyer for fresh Lumiko Sweet cream butter at € 6550
• a buyer for fresh/frozen Irish lactic butter for July/august at € 6600 FCA NL

On butter, we have sellers for

• 9 trucks Irish Q3 at € 6750 FCA NL
• 6 trucks NL/DE/BE for Q4 at € 6850

For the cheese markets, we have a thinner market with

• a buyer for 4 trucks of NL/DE butter for July/August at € 4100 and a seller at € 4180
• a buyer for 6 trucks Mozzarella for Q3 at € 3950 and a seller at € 4150

For the powder market, we have

• a seller for 250mt Belgium SMP, august collection fresh € 2425
• a seller for 200mt French SMP, August collection at € 2460 DAP NL