Post-GDT Dairy Digest

Yesterday the market was "calm" and waited for the GDT results. The outcome was not as bearish as we were expecting and in line with market expectations. There are some positive signals to find in the outcome and those who don't agree with the current bearish sentiment have a fair point in pointing them out. Does demand seem to be stable enough to stop the international downtrend sentiment? Those who are still bearish will point to the fx rate change, so calculated back to euros, today's GDT was still about 2,5% lower. 

But however you read the results, we think the stable headline could be good for the dairy market. It would be good for the market to find a bit of stability because negotiations are hard to conclude when buyers are aiming € 50,- per mt lower every day. We see bigger companies that are a bit slower in adjusting strategy have a hard time dealing with daily changing bids as most sales divisions need to get the OK from management to sell below budgeted prices.

Looking at the internal EU market we see the market is a bit more under pressure. Especially the butter market keeps looking for a floor but has not been able to find one yet. With more cream available compared to last week and fewer buyers, the supply outpaces demand by a lot. We hear trades for cream between € 4600 and € 4800 delivered to factories. Those who produce butter should be able to produce below € 4000,-. But SMC and spot milk are also plenty available. Speaking to an active liquid trader in holland, he reports trades for raw milk below 30ct (and some well below).

Looking at online valorization tools such as Vesper we see that with butter at € 4000,- Cheese at € 2900 and Whey at € 800,- we should still be seeing a valorization above 35ct. If factories sell their spot milk below these levels it might indicate they are also not sure if producing more commodities will keep giving the 35ct return in February and March.

But we are also hearing more and more partners preparing for the bottom of this market. Because we can't trade down in this tempo for more than 8 weeks. If we do, commodities need to be given away for free, and that will not be the case. We agree that we are closer to the bottom of the market than we are to the top, but how far, we just can tell yet.