GDT post a positive result, but is the bottom in?

Today we had another day of low (or no) activity as the entire market is looking for information on which to base their next strategy. And with no activity, we can only debate the entire day which side of the market is right not to act just yet. And there are good arguments for either side. Most decided to wait for the GDT result, and although the main number is up, it is not the result the market needed to push the market back into the bullish mode, we think. 

Talking to our counterparts (traders, end users and producers) they all seem to fear the milk collections. If the Dutch milk collection can be seen as an indicator, we will be facing a lot more milk in the months to come. With 3.9% more milk in September, the dutch are the perfect example of what a high payout price for milk does to milk output. And as the fight for the farmers continues between Co-ops, we have a hard time believing that they will aggressively cut the payout price to farmers.

But as most eyes were turned to the GDT today we have to discuss the outcome as well. And depending on who we speak to the results can be explained as bullish as it can be bearish for the markets. First of all, the outcome was less positive than some expected. The buying appetite from China still doesn't seem that big yet. And those who look at the GDT from a European perspective will tell you that prices didn't go up, but still traded lower when you calculate back to Euros. The fx rate puts the price in euros compared event v.s. event on a minus of € 70,-. The fx rate last event was at 0.97 and now trades between 1.035 and 1.045. If the dollar keeps weakening against the euro, EU product is still getting less attractive at current market levels.

One of our partners did point out the fact that the SMP market did not drop more than 4 events in a row over the last 5 years and even in a bearish market the price always found a floor or bounced back up, even in bearish markets. We have talked about this in previous updates, the market does always show corrections, even in a clear way down.

But the overall result is positive for powders, and that should send a signal to some buyers that the markets cant trade downward forever and we would expect buyers that are facing an empty pipeline to step up to the market and start closing new contracts. And we need a bit of buying appetite to kick the market back in motion.

Looking at the results for cheese and butter the GDT did send a bearish signal. Demand still isn't great, and NZ products will be in heavy competition with US and EU products. And although we still don't see to many sellers for Q1, we do wonder where the suppliers that rely on export sales will shift their product to, especially as they will probably have a bit more to sell due to the higher milk intake.

We think the GDT might give a floor to the powder market for Q1, but for cheese and butter, this GDT did not help the EU market.