Weekly Update: Easing Before Easter

The market experienced a further correction last week. Despite maintaining a bullish stance on butter and stability on cheese in our analysis, the latter part of the week indicated clear signals of a downward correction in the market. Our previous discussion highlighted the ongoing waiting game between buyers and sellers, and it appears that the buyers are currently gaining the upper hand.

In the latter part of the week, producer activity increased, with more sellers than buyers present on Friday, leading to a decline in prices. This timing, just before Easter, seems unusual as this is normally the most active period for producers in the first quarter of a year. However, if the market is already losing momentum before Easter, the next few months may not be as bullish as initially anticipated.

The increased milk volumes on the spot market, leading to spot prices well below 40ct, served as the first significantly more bearish indication for the market. Cheese factories, facing difficulty in finding additional demand at higher prices, are reportedly selling their milk. SMC prices have been under pressure for a while, and now cream prices corrected down even during a week that typically shows strong demand. These factors collectively hinted at the impending correction. Despite this, producers did not sell forward significantly, suggesting a lack of pressure. This kept our market outlook as bullish as it was. The "we have no pressure" stance, didn't seem an act, but more a real concern for many.

But it seemed producers collectively reached a decision in the second half of last week, indicating their readiness to sell as they did find some stocks or unsold forecasted milk intake that could be sold. SMP producers, who had maintained prices above €2450 for an extended period, lowered their prices to around €2350. Butter producers entered the market for Q2 at €5700-5800, where they previously had been offering well above € 6000. Even Irish coops, which claimed to have no stocks, suddenly offered spot prices at €5700 exw Ireland. In the cheese market, producers appear relatively calm, though some traders sold Gouda cheese at  €3800, signalling a potential shift in producer behaviour.

Buyers, who had been seeking cheaper offers, can now secure their purchases giving the market a floor. The question remains about the sustainability of these price floors when faced with increased pressure. In the EU, we anticipate buyers to act collectively and we expect them to push prices down, but competition from buyers in export markets may create a new floor. Worldwide fundamentals for butter and SMP aren't overly bearish, and a few weeks of low prices could rekindle demand. The strengthening euro, while a concern for Europe, may not pose a significant problem given the current price drops.

Retailers, traditionally expected to place demand to stock up stores this week, have reported slower-than-usual demand, not aligning with previous years. The strength of Easter demand will be crucial for the short term outlook for EU dairy commodities. If weaker than expected, a significant correction may follow. However, if retailers have delayed their usual stocking patterns, a retail boost could bring back some upward momentum as well.

Considering all factors, this year has proven to be full of surprises. From the rapid correction at the beginning of the year to the substantial rebound in February and the current easing market in March, a familiar pattern seems to be unfolding compared to last year. If this similar trend compared to 2023 continues, the next four months may be characterized by range-bound trading. Our estimates suggest butter trading between €5500 and €5800, cheese between €3700 and €4000 (Gouda), and SMP between €2200 and €2400.