What’s the Way to Go?

The first two days of this week have been... a bit quiet. After recovering from the Eucolait, we have plenty of partners in Amsterdam visiting the PLMA, disconnected from the active commodity market. Those who are in their offices wonder what the next move of this dairy market will be. Butter prices rallied so fast that it seems likely that prices should correct down a bit. But looking at the cheese market we see the buyers entering the market fast and on higher levels. It seems the bull run in the butter scene jumped over to the cheese market. Our partners who trade powder remain bored on the sidelines of the market, seeing the market easy back down after showing a small rally in the previous days. 

Today we want to take you through some of the quotes we got from our partners and put them in the light of the market.

"Fundamentally the market is tight and bullish"

That is the quote we think sums up the market best. Low stocks, declining milk volumes, short-covered buyers, small long positions with traders and very cautious producers, reducing sales volumes due to lower milk intake and forecast. We are still in the milkpeak and that's why we think it doesn't feel tight yet. But if the current market holds, starting this August we might be facing one of the tightest market we have seen in recent years. A good grass season might save the year, but a 3 months drought will be devastating for milk production and will certainly cause the market to hit new highs.

"If only it wasn't for the questionable demand"

Because let's face it, we do see buyers, but nobody dares to buy anything they haven't sold. The demand has been questionable for months. Although butter and cheese consumption has been steady, it hasn't overperformed. The weak Asian demand for powders has been dragging on much longer than anticipated and might drag on for many months more. The latest butter rally has not been demand-driven, but driven by a lack of supply. Cheese prices have kept stable for months as demand just did not really pick up. Only in the recent week, we have seen buyers coming to the market.

"If demand wouldn't be so poor, we would have been trading on much higher levels already"

We tend to agree, especially for the powder market. Only a small uptick in pricing could send this market into overdrive. and we could see the bull run jump from the cheese market over to the powder market. But what could drive demand up? The bearish economic outlook in China and the fast-growing milk supply in the region tends to give the expectation that demand might stay away for for long.

"The lack of available frozen spot butter, is a red flag for what is to come in Q3+Q4?

This quote is purely focused on the butter market. We can see first hand that deliveries for may contract are being postponed and finding frozen butter for prompt collection is hard. Traditionally the butter market stocks tend to peak in June, but the peak seems to get smaller and smaller. Unlesss producers will divert a lot more fat to butter production we should see butter demand outperform the availability. A shift towards butter production in the second half of the year will lead to less cheese production, causing a cheese rally. The current butter situation seems to be a indicator for what is about to happen for products that carry fat!

"The cheese market is lacking sellers, not product!"

The cheese market is rallying, the question is why? Unlike the butter market, we haven't seen a lack of product here, production has been steady to good over the last months and demand hasn't peaked (yet). We do see and hear a lot more buyers coming to the market, especially those who want to cover their demand for Q3. But producers seem to agree that selling month per month has worked out best in getting the highest valorization in the last 12 months. Therefore we see much more demand than the market can offer. Prices for Mozzarella traded three weeks ago around € 3500 and now we have bids at € 4000 and rising. It feels like the supply/demand ratio did not change, but the offer/bid ratio did, pushing up prices.

"We might have a long milk season"

Ok, so not all we hear is bullish. Speaking to some of our partners on liquids they see that the peak in the milk was smaller in most countries. But the decline after the peak seems to be a bit flatter. Some said to us this might indicate we can have a long season. The weather forecast shows less rain and more sunshine, but no heatwaves, perfect conditions for grass growth. The milk price paid to farmers is good, and the costs are relatively low. The conditions to push out more milk are more than great. The question is why we haven't seen it yet... the answer we got today... we might see the change soon.

These few quotes sum up the day we have discussed the market with our partners. We enjoy the different insights and we understand that both on the buyer's and on the seller's side there are loads of uncertainties that could put the market towards new all-time highs, or plummet them back into the boring range we saw in the last months. We will keep informing you to the best of our abilities.