If this, than that.

The market seems to be looking for direction, and we dare to say that there is no clear direction. Even the most experienced trader says he sees a lot of scenarios that are likely to unfold. A lot of the conversations start with a good analysis of the market, but end with a ... but if..... . And although we are always faced with a market with uncertainties, now there are a lot of buts and ifs in the market that all seem likely to unfold and they all have a big impact on supply and demand. It reminded us of one of our favourite fragments of British television that is describing the ifs and buts in the market best.

Watch it here! 

"If my grandmother had wheels, she would have been a bike!" It is a 12-year-old legendary quote that we use a lot. And we hear it in all our discussions:  The bulls have their own ifs: "If China jumps back into the market, prices might rise." or "If there is a drought this summer, Europe will face a lot less milk." and "If farmers will receive less than 40ct for the milk, they might stop milking".  These ifs are hard to argue with, but they are all "ifs"

The bears have their own buts. "But, if the milk price doesn't drop fast enough the milk flush will be enormous" and "But if there will be an economic crisis, consumption will be hit even harder" or "But if trade tensions in the world might intensify, export to china might become difficult".

And we don't want to joke about all these big IFS, but we think must look at what we know to be true for a fact. The only problem with facts is that hard data only becomes available a few weeks/months later. It explains the market behind us, but it tells little about the market in front of us.

So we have to discuss the IFS and the BUTS while at the same time looking at the spot market for hard facts. These facts tell us that there is weak demand for raw materials like raw milk, SMC and cream and that warehouses are reported to be full. We have to look at the roughly 1-1,5% milk intake increase we see in Europe. In addition, we have to factor in the lower export numbers, they support the reports about the building of stocks in the EU warehouses. Putting these hard data together we believe the short-term direction for the EU dairy market is bearish.

What happens in the mid-to-long term is very uncertain. And those who want to buy into that uncertainty for Q3+Q4 have to accept a higher price. Because the market does seem to agree that in the long term, there are more ifs that point toward higher prices than buts that counter those arguments. Last year we saw that the market priced in a decrease of the market for 12 months in a row. The market traded with a strong backwardation for more than 12 months before actually dropping back to lower levels. If it will take the market again this long to definitely change direction, that depends on a lot of IFS and BUTS.

Looking at the GDT data of yesterday we think there is little to take from there. IF it would have been a more outspoken outcome we might have gotten a bit more direction. BUT with a result of -0.7% its doesn't really mean anything.