Weekly Update: GDT to set the tone?

Last week was a hectic and heated week in the dairy market with higher trades on butter, more demand for cheese and a firming futures market for powders on the EEX and CME it seems the dairy market sentiment has turned around 180 degrees. This week's GDT might be an important one to watch as a bullish result might strengthen the bullish sentiment in the market. Still, a bearish result might take the heat out of the market, as we think the current market rally is more sentimentally driven than fundamentally. 

But we would not be surprised if GDT over-performs its expectations a bit. The bearish sentiment from the last months comes from lower buying interest, but also puts buyers in a more conservative buying mode. When buyers are bullish they tend to buy a bit more than they need, when bearish a bit less. So if the market turns, these buyers sometimes overreact a bit and buy a bit more rushed. We think this is happening in the EU at the moment. Market sentiment turned around and buyers who have been postponing purchases for a longer time, now decided there is little risk in buying a bit extra at the market low levels leading to a buying impulse.

Looking at the futures on NZX/SGX it seems the market is still a bit undecided. Futures are relatively flat compared to the last event although we see that the forward curve is a bit steeper. The market is in contango and shows some nice premiums. It rimes perfectly with the worldwide sentiment that today's stock and milk production might keep the market steady, but long-term concerns about milk supply put a premium on the second half of 2023.

We expect the market to start relatively calm this week. At the end of last week, we saw buyers take a step away from the market to reevaluate the current sentiment. As said we have a strongly divided group of counterpart of which 50% believes market prices might rally further up, and 50% seems to think we are seeing a dead cat bounce (but the cat bounces higher than most expected). Most sellers and producers we spoke to feel comfortable waiting for the buyers. Most of them seem to have taken enough pressure from their books to sit back calmly and wait for buyers to come back after their evaluation.

So for this week, we think the market will have to wait for liquids to set the tone on Tuesday / Wednesday. In combination with the GDT results, we expect the second part of the week to be more active. In wichs direction? We would not place a bet on it,  it could trade both ways in our opinion.