GDT Results Causes Headache for European Sellers

Yesterday was a textbook GDT day. We spend the morning discussing the markets and the potential outcome of the GDT and buyers and sellers agreed to wait for the results to discuss where the market price should end up. But during the event, we saw that buyers started to call before the end of the event, but buyers decided to sit out the ride. The headline result of minus 3.3% doesn't look that bad, but taking a closer look at the result we see that European sellers will have a hard time turning this event outcome in their favour. 

Taking a look at the result below we see a different picture. We see a big drop in butter prices. AMF managed to close the gap with butter a bit, but it is still trading at a big discount v.s. butter. Looking closer at the butter results we see the backwardation towards Q4 is shrinking a bit, but it is still there. November / December prices are now around $ 4750 / € 4350,- levels. This would put it at a big discount v.s. EU butter (futures now around € 4800).

Looking at the Powder we see BMP went down more than 11% and SMP more than 6%. The forward curve for SMP now makes SMP prices around $ 2550 / € 2350 for Q4, also a big discount on where we see the EU market price. The strongest result comes from WMP. With only a small minus of 0.4% it was (for us) the surprise of the event.

But the overall sentiment surrounding the GDT results was very bearish. Yesterday we wrote that the GDT result would set a bearish tone, looking at the spot market it feels that tone will be dark and heavy. After the results came out sellers started to offer more aggressive prices for butter, SMP and cheese, with most products trading down. Only for SMP we haven't been able to find any buyer.

Stocks Stocks Stocks

In the meantime, we keep talking more about stocks. We are getting more and more offers for collection of products for July, but buyers are nowhere to be found. The problem for most is not the price, but the ability to store the product. Finding warehouse space is difficult and therefore we see that buyers rather pay a premium for Q4 than risking to engage in a contract where collecting the goods is a must. When a warehouse transfer is possible, buyers are more eager to engage. Therefore it seems likely that the price of fresh-produced goods will come down harder than stocked goods, as fresh-produced goods need more handling and adds higher cost. This will likely push producers to lower commodity production and sell more liquids in the coming weeks.

This doesn't seem to be a European problem. In the US butter stocks are reported to be on the rise as well. Demand seems down, and export with lower EU and NZ prices very difficult. It now seems the US, the EU and NZ all face an oversupply situation on fats, something that doesn't happen very often. The same seems to be the case for NonFat and SMP.

Cheese in the US seems also plenty available. Stocks are pushing down the price hard and it seems that the bottom hasn't been found yet. Worldwide demand for cheese is sluggish and therefore stocks are building.

Overall the supply/demand situation in the world doesn't look promising for most commodities. With a lack of demand, sufficient supply and no incentive for consumers to buy (consumer prices are still high) and no incentive to produce less (milk prices for farmers are still ok) it seems that prices will have to come down more before they can move up again.  It might be a long and painful summer for sellers.