Weekly Update: Volatility Expected!

Last week the dairy market had another volatile week. The fat market exploded to much higher levels, the cheese market continued to grow to higher prices and protein prices traded back down again. Good demand for cream boosted the cream price and demand for lactic butter with the end destination Turkey keeps taking stock out of the EU. Demand for foil-ripened cheese remains strong on the spot market pushing up weekly prices with roughly € 100,- per mt. But a weaker pulse, a weaker dollar, a disappointing ONIL tender and a lower trending oil price have taken out the confidence in the powder market. They week ahead promises to be at least just as volatile, we will be watching the following:

GDT: Can it be bullish?

The first big event for us to keep an eye on will be the GDT this week. Looking at the SGX futures it seems the market expects a more bullish move. Especially on SMP, Butter and AMF, the market seems to expect a jump up. Apart from a bullish butter week in the EU we don't see the logic in a bullish move. We expect the market to take another step down from the previous event, reflecting the negative sentiment for powders we see and hear among our partners. On butter we might see a move up as NZ product is by far the cheapest product with the last prices still below $ 5000,-.. In general, we would expect a slight negative move down.

Milk collection in the EU: Can it recover?

Milk collection in the last weeks has been trending lower and lower and has shown in some countries bigger growing deficits than we might have expected. This seems to be well reflected in the spot market for liquids where cream prices (boosted by Christmas demand) have shot up at the end of the week again. Milk prices in France and Spain are now the best contract prices in the EU and it seems western EU coops need to step up with the newfound bullish trends. But it takes time to recover lost milk volumes. if the spot market for liquids remains bullish this week, we expect commodity prices (especially butter and cheese) to remain firm.

End User Demand: Will they need to buy?

Last week we saw that end users started to look for quotes again and we understood from our partners that it seems likely that most will still need to cover at least a part of their quarter-one needs. So far they have been avoiding paying the growing prices of the last 2 months by saying their demand is down and their stocks were still high. But even with less demand, it seems end users are using their stocks quickly and they will need to replenish in Q1. Most won't have the possibility to postpone longer and wait for more milk and lower spot demand. A buying rally could cause prices for butter and cheese to skyrocket once more as it seems the stock among sellers is small.

Producer: Locking in a healthy milk price

Looking at the sales side of the market we do expect producers to slowly step up and get back to the market. With butter prices well over € 5500, SMP prices still above € 2500 and cheese prices well above € 4000,-, producers have a good opportunity to lock in a good milk price for their farmers. And where two years ago a milk price at 45ct wasn't sufficient to pay the cost of production (energy + feed prices skyrocketed), this price should now give a solid return that makes farmers happy. And even though some producers might still feel they can wait two / three extra weeks, there is a good argument to start selling at these prices. Because Q1 is not known for its high consumption, especially not on the fat side. In addition, it seems most will forecast milkcollections conservatively which could lead to a more active spot market.

In general, we expect the market to get a lot more active on both sides. We expect more requests for quotations and more offers from the producer's side. And with high future prices, we might even see producers lock in milk volumes for 2024 via EEX contracts. We also expect to see steady Christmas demand keeping the spot market for liquids firm if milk collections don't increase fast. The market for this week is set up again for a volatile ride!