Wake Me Up, before the Market Go-Goes!

Yesterday was an uneventful day for us on the market. After a bullish GDT, we would have been expecting more action, but the buyers kept away from the market, all while sellers have no pressure to come to the market. This resulted in a boring day with little movement on the commodities we broker. The question is, is it postponed demand that will be triggering the market to wake up again? Or will supply pressure due to low buyer activity push to bring the market back down a bit?

To start with the first? We do see and hear that big buyers are postponing purchases, so we do believe that once these buyers return, they will push the market up again. The big question remains, will they come back? Speaking to some end users, they claim they would rather take a penalty for not fulfilling contracts than to cover at these high prices. This reasoning applies only for the butter buyers. Some also tell us they would expect some of the demand to be killed if they have to price in the butter price above € 7000,-. This would mean that postponed demand might turn in to diminished demand. A side note here is that we think that if one partner decides to default on their contract to, for example, the retail or food service, competitors will pick up the opportunity to take a bit of market share. It could raise the price for consumers a bit faster, but we doubt it will kill off demand instantly.

On cheese, it feels the buyers are a bit more relaxed and decided to wait for the market to settle a bit. And now they do it seems that availability for most products is still good. On mozzarella, we would still expect a bit of shortage in the next weeks, but Gouda, Edam, and Maasdam seem to be available just fine. We do not expect prices to trade back down, but the upward potential seems limited as buyers prefer to keep buying hand to mouth after realizing that trying to buy forward for three months is a costly exercise.

So with buyers pulling back from the market, we see the activity slow down. At these high prices a lack of activity could cause producers to get under pressure if freshly produced products do not get taken out of their hands. And at these prices, market pressure could lead to quickly declining prices. But for now, it doesn't feel that there is a lot of pressure on these producers. In fact, most producers we speak to claim to be sold out for the months ahead and some are still behind on the deliveries of the previous months.

So maybe the stock pressure will start to put pressure on traders, but even looking at the trader's market, we still see traders lacking products and deliveries on the by us brokered contracts are also facing some delays or late deliveries. We do see them carrying a bit of winter butter or SMP, but on cheese most stocks are low. So the stock pressure clearly isn't on the side of producers or traders yet.

It seems we would need a slowdown in collections and new orders for a longer period of time to really see pressure building in this market. But we will not exclude this. Speaking to end user, most claim to have covered their needs for the next weeks, and unless demand from food service or retail, or demand on the export markets picks up, most can sit the next weeks out.

Liquids: Germany Causing Pressure

With problems in the south of Germany due to floods and heavy rainfall we understand the market for liquids got mixed up a bit this week. With less drying capacity and more milk diverted to surrounding factories, it seemed a bit more SMC and cream caused these prices to fall back a bit. We hear cream prices trading between € 7600 in Eastern Europe and € 7900 in Western Europe we see the market slightly lower. Butter producers in the east are buying less cream as they can't sell butter at the prices they need to ask for products made from cream at € 7800.

SMC prices dropped even below € 1900,- although we keep hearing a very widespread on SMC prices as we also have partners claiming to sell still above € 2000,-. We also hear raw milk prices have declined a bit, but again prices range wide between 42ct up to 50ct. Speaking to the liquid traders, most think the balance will be back within two weeks.

Butter: Buyers at the Bottom, Sellers at the Top

The butter market has come to a halt now buyers are stepping back from the market, aiming for lower prices, while at the same time, sellers are happy to wait for buyers to return. Someone spoke about a Mexican standoff, but that would suggest to engaged parties waiting for the other side to move. It now feels like two Mexicans sitting next to each other, enjoying lunch before they go back to the market.

We see a buyer-seller spread roughly at € 100,-. EU Quotations moved further up and are now at an average price of € 6650, reflecting a fair market price we think. Activity on futures continue to show buying/selling interest just around € 6800 or slightly lower, but also hear it seems there are no big moves made.

We expect to start the day with:

• a bid for 2 trucks July NL/DE/BE fresh/forzen at € 6670
• a bid for 4 trucks October NL/DE/BE fresh/frozen at € 6675
• a bid for 6 trucks Irish butter FCA NL fresh/frozen at € 6600 for Q3
• a bid for 2 trucks fresh Lumiko Sweet cream for June at € 6500
• a bid for 4 trucks Arla DK fresh/frozen at € 6550 for June

We have sellers at

• 1 truck RFC fresh/frozen FCA NL for June at € 6850
• 2 trucks German Sachsenmilch for June at € 6700
• 8 trucks Irish fresh/frozen FCA NL for June-September at € 6750
• 2 trucks Leche Celta for September at € 6900
• 6 trucks NL/DE/BE fresh/frozen for Q3 at € 6800

Cheese: The Return of the Seller

Two weeks ago the cheese market was lacking sellers, but the good news, they have returned. Only to find them offering to a market with a bit less buying interest. As said, the cheese market in our opinion still has the same S/D, but has a disbalance in sellers/buyers. When the buyers outnumbered the sellers, they moved the price up, but with more sellers than buyers, it seems some commodities might move down in price.

We see a bit more sellers for Gouda, and Edam and Mozzarella and would expect prices to move slightly down

We have sellers for

• 3 trucks of Gouda for the first half of June at € 4035
• 4 trucks of Gouda for July/August at € 4175
• 4 trucks of Edam for June at € 4100
• 6 trucks of mozzarella for Q3 at € 4200

Powders: Futures Up, Physical still low

On the powder market, we remain a bit puzzled. Futures for further out are trending higher, most likely caused by the firm GDT of yesterday. But for close by the market remains filled with offers that we cant match with our buyers. It seems nobody wants to cash and carry stock, and demand from the EU remains low. The lower prices for SMC also contribute to the bearish sentiment for close by, but they do not seem to affect the market for further out.

We start the day with the following:

• a bid for 400mt smp from Ukraine at € 2100
• a bid for 200mt BMP from France at € 2400 FCA NL
• a bid for 200mt smp medium heat, fresh with standard export docs for September at € 2375
• a bid for 300mt smp medium heat, Solarec origin, max 6 months old for Q4 at € 2625

We have offers for

• 250mt of Limelco, fresh smp medium heat, SMP for August at € 2425 FCA BE
• 200nt of French, fresh smp medium hat, SMP for August at € 2460 DAP NL
• 100mt of German fresh smp medium heat, SMP for Agusut at € 2525 FCA Germany
• 200mt of French BigBags SMP €2450 DAP NL for June
• 100mt Ukrainian SMP (max 10k TPC) SMP 25kg E2450 DAP NL, Jun/Jul
• 100mt Ukrainian SMP (max 30k TPC) SMP 25kg E2390 DAP NL, Jun/Jul
• 200mt EU15 SMP MH >35% 25kg E2525 DAP NL, Jun