Weekly Update: Milk Peak v.s. Price Drop

Last week the market showed more than enough activity. We saw butter prices trading down at the beginning of the week, only to recover again towards the end. Prices on Friday traded at the same levels where we started the Monday. Cheese prices meanwhile seem to be showing slightly more pressure, although it's mainly the size of the offers that have grown, and not so much the sales price that has come down. The weakest commodity meanwhile is the SMP market. With more offers at lower levels, we clearly see a downward trend. The question for most of our partners remains, is the current pressure only caused by peak milk and unfavourable weather conditions for consumption? Or are we seeing a significant imbalance in the dairy market between supply and demand?

We start the week again by taking a look at the balance for the different commodities we talk about every day and have a significant impact on dairy prices.

Liquids: More Liquids Looking for an Outlet

The peak of the European milk intake is coming closer and the effects are clearly visible. Last week raw milk prices dipped significantly lower and we heard raw milk prices trade around 33ct, but some traders even were able to confirm purchases and sales below 30ct. Although these prices are well below the payout prices to farmers from the coops, it's not that unusual for spot prices for liquids to trade with a discount during the milk peak.

We also see SMC prices trading down with prices as low as € 1100,- and skimmed milk trading even below 5ct. Some explain the low prices by the absence of customers in Greece this week and the cold weather in Europe that causes the demand for fresh products to start late. Others see a more structural problem where demand for proteins is down more structural. With the feed industry taking in fewer goods and exports down even more demand from the fresh industry and Greece will not bring SMC prices back up to € 2000,- anytime soon.

Looking at the cream side of the market, we saw prices tank at the beginning of the week to prices as low as € 6300,-. It seems the same reason for SMC prices to drop applies here. The lack of demand from the fresh industry is causing more products to float around. But during the week it seemed the cream market pulled up a bit. Good demand for butter at lower prices seemed to be acting as a floor, causing the cream market to come back to life again. It seems the expectations for the next weeks are very wide. We have a few partners who expect the drop of last week to continue and they expect cream prices to trade towards € 6000,- this week. Others think that a slightly better weather forecast and strong demand from the butter industry could give a new bounce to the cream market.

Butter: Solid Demand, Soso supply

The butter market dropped significantly in the last 10 days. After trading well over € 6000 for Q2 earlier, prices at the beginning of last week dropped toward € 5650. The drop seemed to be caused by cheap cream prices leading to lower prices for Polish butter. We had some arguments with partners in Germany and Ireland that lower butter prices in Poland should not cause lower prices for German and Irish butter. We agree partly, but as quality and application purposes for some Polish butter are the same as they are for German or Irish butter, cheaper prices have an impact on the entire butter segment.

But as said above, the cheap cream dried up towards the end of the week, causing the cheap polish butter to dry up as well. But demand from the industrial buyers kept showing, pushing up prices again. We did not see cheaper butter from Germany or Ireland being offered so prices toward the end of the week traded roughly on the same prices again as they did the Friday before.

The question for this week remains, how will the cream price behave? Looking at the weather forecast we see a slight improvement, but it still doesn't look like weather that will boost the demand for fresh supply sky-high. We would expect the market for this week to show a continuation of recovery although we doubt seeing prices back above € 6000 for Q2. Buyers who would like to lock in some quantities for Q2 should expect to be paying well above € 6000.

We expect to start with the following market:

• a bid for 6 trucks NL/DE/BE May / June at € 5825
• a bid for 6 trucks NL/DE/BE Q3 at € 5950
• a bid for 6 trucks NL/DE/BE Q4 at € 6000

And

• an offer for 4 trucks NL/DE/BE May/June at € 5900
• an offer for 4 trucks NL/DE/BE August/September € 6200
• an offer for 2 trucks of Irish Salted Sweet cream at € 5750 for May

Cheese: More Offers, Buyers on a Break

The cheese market seems to be growing a bit in size looking at the sales side. We see significantly more partners willing to consider sales, although the offered prices haven't come down yet. But it seems the expected sales pressure might finally come. Although we don't see many different sellers compared to the previous months, it seems that the regular buyers are more comfortable waiting out the sellers. For the first time in a few months, it seems a bit more likely that the cheese market might trade down.

But buyers should remain cautious, we have seen the waiting game turn very quickly, and where buyers seemingly had the upper hand in negotiations, markets can turn bullish quickly again. The next few weeks might bring a nice buying opportunity.

We see sellers for the following:

• a seller for 4 loads or Mozzarella for May at € 3525
• a seller for 6 loads of Gouda for May/June at € 3835
• a seller for 6-9 loads of Gouda for Q3 at € 3875
• a seller for 6 loads of Mozzarella for Q3 at € 3750
• a seller for 6-9 loads of Cheddar curd for May/June at € 4025
• a seller for 6 loads of Gouda for Q4 at € 4100

Powders: Who wants proteins?

Our market view for proteins has been bearish for a while, but in recent weeks we saw a bit of support, or at least we thought we saw some. Higher trades for SMP FEED, higher trades on EEX in combination of low stocks for SMP and a stronger dollar that made us believe the bottom of the market was behind us. But last week the market seems to have found its way back to lower prices again.

Even with a stronger dollar (weaker euro), it seems the EU isn't catching a lot of export business. Some of our export buyers claim to be buying below $ 2500,- CFR South East Asia. One of our partners says it calculates back to roughly € 2250 cost price FCA EU. And that seems to be the price level fresh EU product now is trading towards. Those sellers who would like to sell some older stock are faced with bids below € 2200 now. Last week we saw the market trade toward € 2200,- and some partners even claim to be buying lower than that. FEED prices are coming back down again (we hear prices back down € 150,- per mt)

It is not only the lack of buying interest from the international markets that is causing our partners to be bearish again. Internal EU demand from the feed industry and the low prices for SMC around € 1100-1200 give reason to believe the low stocks are growing at a rapid rate at the moment. We expect to have a market as follows to start the week:

• 450mt of BC Spec for Q3 at € 2450 FCA Ireland/Poland
• 250mt of Solarec SMP Fresh at € 2350 for May
• 200mt of SWP (Irish) at € 800,- FCA Irland for May
• 200mt of SMP 36% protein at € 2275
• 200mt of SMP 37% protein at € 2350 (NI-UK origin)