It’s a Duck!

Yesterday was the most commented morning update we have written in our 2-year existence. Most phone calls were answered by either quacking ducks or growling bearish and we think it's safe to conclude that our partners are 50/50 divided on whether the market is clearly bullish or just overheated and on the verge of a reversal. But(ter)  trades don't lie, and today butter and smp trades clearly moved higher. The amount of WhatsApp ducks after every offer, bid and trade were funny and telling at the same time. The best laugh at the end of the day we got from a reluctant buyer who said... "Do you know who eats the ducks?" 

But all jokes aside yesterday we saw a strong upward move, especially on the butter front. In the morning the bids came in at € 4400 for German butter, and at the end of the day, we traded butter for Q4 at € 4600. This time the firmer sentiment didn't come from the liquid market (or at least, we didn't see much higher trades for cream) but it is the rally on EEX futures that spiked physical demand.

On cheese, the market remained calm and we got more offers and no new bids. But on the powder market, the sentiment firmed a bit as well. SMC prices are still strong (we hear traded done up to € 2400 DAP) and we see more buyers appearing at the same rate sellers are stepping out. Our bearish market view is starting to look more bullish by the day, but those who know us know we are big and heavy, and something big and heavy doesn't turn around quickly. But I guess we are halfway.

End User Stay Out

The biggest concern we keep having is the silence we hear from end users. Especially on cheese and butter, we have a hard time getting any bids. Even low bids are only shown for Q1 and Q2, but in Q4 the willingness to take additional volume is very underwhelming. Of course, this might still change, but our analysis has been for weeks that demand is weak. As we have written before, why would there be more demand at higher prices, than at lower prices?

For Q1 and Q2 we hear end users are starting to buy again, but again still at levels we have seen in the previous 9 months. Prices up to € 4700-4800 for physical are excepted for further out (Q2) and on EEX prices we see bids as high as € 5100. But in the previous 9 months, this has been a top every time. We wonder what would make this time different. But still, we are trading a good € 200,- above yesterday's prices and we don't see many offers coming to the market.

China back in?

Looking closer at Tuesday's GDT we see that China is back at the buying table, or at least, back at Fonterra's buying table. So far we haven't heard from any of the partners that they have started looking for offers from the EU anywhere else. Most partners were surprised by the increased activity because there were very few signals indicating demand was back up. So is this a one-time event to test the market on lower levels? Or will they keep their seat at the table?