Bounce like it’s 2023?

Yesterday the market showed some extra bullish moves again. Although the bullish moves mainly come from the butter side of the market. Cream prices have increased a bit, but not at the same rate the butter prices are shooting up. Cheese sellers are trying to get some bullish momentum over to their markets, but we continue to see prices ease back and SMP prices in the EU can't seem to get any traction yet following the bullish GDT moves. So the question is, how bullish is the market? Are we seeing a bounce and go back down as we did in 2023? Or can the market continue its rally as it did in 2022?

Bullish GDT boost future markets worldwide!

Looking at the GDT results first we see the event is up for the 5th time in a row, posting a 4.2% increase v.s. the previous event and overperforming on the expectations for most partners we have in the market. Butter takes the spotlight with a 10.3% increase boosting the worldwide positive sentiment. CME butter prices already showed an impressive rally in the last weeks, and after the GDT we see prices firm even more. EEX futures jumped up on the results trading up leaving the market with a € 5750 bid and € 5800 offer in Q2.

Cheddar prices are up also 6.3%, which should give the cheese seller a little confidence boost. Although EU cheese sellers will try to avoid looking at the mozzarella price result. With € 3500 the price for mozzarella continues to decline.

Looking at the powders, we see both SMP and WMP found a strong increase, although looking closer at the EU SMP results we see little reason for EU sellers to be bullish. The weak results for Arla SMP resemble the EU market as we see it better. The premium for Solarec SMP is roughly the same as we see it in our market between our partners but still at a discount v.s. NZ powders. We did see EEX and CME futures increase after the GDT results.

Looking back at the February GDT results of the last 10 years, they have been bullish more often than bearish. The declining offered volumes tend to have a more bullish effect on the supply-demand ratio and therefore the pricing. And with the EU and US not fully in their milk peak, the world prices tend to bounce a bit up around these times.

2023 or 2022 rally

The last two years February has been a bullish month where prices increased significantly. In 2022 the market rallied on a much lower milk intake as milk prices were low and the cost for farmers increased dramatically due to extreme energy prices and high feed costs due to the war in Ukraine. In addition, the world was living on free money and it seemed demand everywhere was extremely well. The world celebrated the end of COVID with restaurants opening up and consumption in and out of homes increased.

In 2023 the market rallied as well. But last year the rally was less fundamentally driving but it seemed traders and end users got caught in a short squeeze. With all buyers appearing on the market while sellers were not ready to sell forward, the market prices for butter and cheese bounced up. For both prices, this was short-lived and prices eased back down in the second part of the month again.

The butter price rally we have seen since last week seems to be looking more similar to that of 2023. Unlike 2022 we see a steady milk intake, costs for the farmer are low, money isn't free anymore and demand is under pressure. Moreover, in 2022 the demand for cheese was strong en Gouda and Edam prices rose to prices well above € 5000,-. At this stage, these prices look feasible. We do see that after a strong rally down in week 4, the market is a bit oversold and end users and traders are trying to lock in what they oversold. But with producers stepping back from the market again, the supply is far from sufficient. If prices of yesterday are a top? we don't know, but it feels more like a correction than the start of a new rally.

There is one thing however that we think the market needs to be aware of. With NZ prices around € 6000 and US prices around € 5800, the EU is now the most attractive place to buy butter. With lower ending stocks compared to last year, strong exports might result in a tighter S&D balance.

Be Cautious

Looking at the market advice for those exposed to short positions on fat, we would advise them to be cautious. With a lot more buyers out there and sellers holding back, prices can increase fast. But the same advice we would give to those exposed to a long position on cheese and SMP. Even though GDT prices might indicate increased demand, we still see a lot more sellers and buyers remain hard to find. Sellers should want to avoid being forced to sell once the milk intake starts to peak in the EU.

The Irish Hold the Key

Two weeks ago we wrote a small update about the Irish Issues. While focussing on their exposure to a weak world market and a largely covered continental market we expected that they would face great difficulties selling their new season commodities. As it seems they now hold the key to how fast the market can turn. Speaking to our Irish partners we feel the pressure to sell is yet to come, but it might take a bit longer than most of us on the continent would have expected. We would advise the Irish not to wait too long as this week's GDT might be the perfect window to get a 10% bonus on the goods they would have sold last week at a big discounted market. Some of our buyers regret not buying when the prices suited their books last weeks, we hope the sellers wont be looking back at this weeks markets thinking the same.