The Daily Dairy Digest: 18th of October

Yesterday was our 2nd day at the SIAL and it was a busy day. The dairy hall filled up with people from all over the world and we enjoyed the conversations about the dairy market and what to expect. Putting all the information on one big pile our market outlook is still bearish but we do see that a lot of conversations are packed with Fear, Uncertainty and Doubt. This FUD might keep the market firm for a few more weeks as we think producers will not sell forward on very low levels as they can't speculate on a market that is coming down as hard as it is. Especially with so much uncertainty surrounding cost and milk collection. But it is the same FUD that will keep buyers from buying too much forward. We would expect to see very active spot markets for the months ahead. If the market is oversupplied, we think a very active spot market will lead to extreme volatility. 

Looking at the supply side, milk collection in France and Germany continues to post increases compared to last year. We see French milk is up 0.7% and german milk is up 1.2%. With a strong milk price above 60ct almost everywhere in Europe we see even the most conservative partners convinced that milk collection will continue to grow over the next 6 months. And we hear the Co-ops might have a hard time lowering the milk price to quickly again so during the season when the production of milk is most costly the milk price will be good enough to push more milk out of the cows. We do see that US milk forecast en NZ milk forecast is a bit more conservative taking a bit of the weight of the worldwide supply balance.

Looking at the demand side we don't hear there are a lot of buyers out there, therefore we think that this afternoon the GDT will give a good view of how international buying interest is. SGX futures seem to suggest a small plus, but that would not correspond well with the sentiment at SIAL. We would think that prices on GDT will correct a bit more to reflect the SIAL sentiment. Looking for demand inside of the EU is also difficult although we do expect that November contracts for cheese and butter still need to be covered by a few counterparts. Therefore we don't think that prices for November will collapse for butter and cheese. SMP demand is weak for close by and the market starts to feel the pressure of stocks weighing down the average prices more and more.