Agreement on Ranging Prices

The market yesterday felt it got to market levels where buyers and sellers are starting to be more comfortable. We see butter prices still easing back a bit, and cheese and SMP prices are firming up. It seems the market is getting to prices where buyers and sellers both feel comfortable, so we might get to calmer waters in the weeks ahead. 

The market is facing seasonable more milk, but also YoY it seems the next few months the EU will face slightly more milk compared to last year. Looking at the market for liquids raw milk is getting a bit cheaper on the spot market as does smc and skimmed milk. The cream does seem to be holding up ok, but this is mainly caused by the high butter prices we have seen for a week. If the current milk supply doesn't show an unexpected extra uplift or decrease we expect the market for liquids to slowly trade weaker, but nothing different than we see each year.

Cheese: No need to go lower, no need to go higher

The cheese market is picking up a bit in price. The bullish GDT and the firmer undertones for butter are making buyers a bit more willing to pay prices roughly at the same price as the spot market today. We see buyers for Gouda roughly at € 3850 for the next few months, while sellers aim slightly higher at prices of € 3900/ € 3950. It does feel the sellers realise that prices well above € 4000 for Gouda/Edam/Mozzarella are not very likely. The export problems, milkpeak issues and valorization incentives all seem to place a top in the market that even producers agree on. On the buy side, most buyers agree that prices between € 3800 and € 3900 are working well and most remember the effect that low prices in Q1 and Q2 last year had on the availability in H2.

Powders: Catching up with the world market

For SMP we see the prices need to move up a bit as export prices increase and internal EU production is running very low if prices are going further down. We see a bit more demand for non-standardised material and the cheapest offers we had are no longer available. But with SMC prices trading between € 2000 and € 2100, there is no reason to expect a price boost towards prices of € 2600 or € 2700. (although EEX prices for Q2 did trade between those levels). In general, it feels that prices between € 2400 and € 2500 are acceptable for both sellers and buyers.

Butter: Finding a Healthy Range

The butter market dropped too low two weeks ago and at prices below € 5200 the production side of the market just isn't attractive and the product gets exported easily outside of the EU. And as long as the milk intake is not yet pushing hard on producers to let products go out of their warehouses we see no reason for products to trade below these prices. In addition, we also see that end users in the EU are comfortable building some stock as soon as prices drop below these levels. But at the high range of the market trades this week we see the opposite effect. At prices above € 5500 buyers step out and building stocks at these levels makes no sense, not for end users, not for traders and not for producers. We therefore see producers are happy to sell butter for € 5500-€5600. A higher butter price without a fundamental change (lower milk, higher exports) seems also unlikely. Although butter isn't a product that keeps away from volatile swings, we would say butter between € 5200 and € 5500 in the next weeks is healthy and likely.

We don't think the market will stop being volatile and the above ranges won't last long if sellers will push prices to far up, or if buyers will push prices to far down. But speaking to all sides of the market, it would feel healthy if these levels would hold. The milk returns are sufficient at these levels and demand should not be killed. Lets see how long the market can trade around stable prices.