Grinding Lower, but the floor is firm.

Yesterday we saw the market trade a few levels lower again. We see a growing belief amongst traders that pressure from the producer's side is growing and will not be sustainable for more than a few weeks. With that in mind, we see they are trying to get some last sales in their books, but end users are either covered for their needs or following the same strategy. Bids are drying up fast and it seems we only have offers left at the moment. 

We understand that the current good demand for cream and milk is causing producers to doubt their strategy. The price levels we see in Q1 for SMP, Whey, Butter and Cheese don't give the same valorization as the current spot market. It is hard to explain to your stakeholders why you are selling with a 10-15% discount for further out while the market remains tight for close by.

But asking around the few deals at higher levels don't offset the pressure that is slowly building on the stock. Fewer and fewer producers feel comfortable stocking goods in warehouses and we hear more producers switching to sales at lower levels for Q1. Gouda and Edam are reportedly sold by producers between € 4400 and € 4500 DAP customers and Mozzarella is even a bit below this.

But not all producers are facing trouble selling a bit lower. Those with a strong retail outlet are getting fantastic prices for their retail contracts, that they lose a bit on their commodity business doesn't hurt them in the short term. We do however believe that in the long term this is will cause milk prices to remain firm, milk production to be incentivised and milk volumes to grow, putting more pressure on the commodities. Only when the new retail contracts will be renegotiated (most will be for April 2023) we will see the strong effect of lower commodity prices hit the contract milk prices.