Here Come The Sellers!

Last week was another active week for the dairy trade. With over 1700mt of butter, cheese and SMP going over our platform we can see some changes in sentiment and strategy. As expected we have seen producers/sellers come to the market in recent weeks looking for buyers not only for closeby but also for a bit further out. And with that, we see a change in sentiment, from stable to more bearish. 

The strategy for most sellers for a long time seemed simple, sell what you have and don't sell too far forward. Since February this strategy appears to have been a winning one. Prices have remained stable or firmed slightly over the weeks that followed. With this strategy, sellers have secured themselves the maximum sales prices that could have been achieved. But with pressure on stocks mounting for some products and buying activity slowing down on some, this strategy is losing its returns. Spot prices have been falling and the forecast from buyers needs is declining fast. So sellers have decided to return to the market and start securing sales for the remainder of the demand.

We see differences within the different products that we broker. The pressure on butter seems to be increasing fast and with high costs for financing and a low premium for further out, spot prices have declined fast. The weak demand for cream is also adding extra pressure on the market. Export demand for butter also seems weak, giving the suppliers and sellers less outlet for their product. Especially Irish butter seems to be hit hardest by all external factors. Storge in Ireland is full, and with their peak milk, they need to finance a lot at the same time. In addition, Irish butter has been a strong export product and has been returning a good premium in retail. But inflation is pulling away demand from premium brands to private labels, causing fewer sales in retail butter with an Irish origin.

On SMP we see a similar trend, although it seems finding storage and financing have less impact on the spot price. And where butter doesn't find a lot of buying interest on the international market, SMP might find some demand if prices decrease enough. Also, the demand for SMC from the spot market also takes some pressure on production. But if this week's GDT will give another negative forecast we expect SMP prices to follow the same trendline as butter. With that in mind, we hear more and more producers have been actively looking for buyers for the whole Q3 and even Q4 is being offered.

The strongest of the commodities remains cheese, with Gouda, Edam and Mozzarella pulling the market. Cheddar and Emmental demand seem harder to find, and stocks of these products have been growing over the last weeks/months. But Gouda, Mozzarella and Edam stocks aren't easy to build as they tend to lose value fast. Demand for all three has been good and exports for all have been strong in the first 6 months of the year. It seems that even at full production capacity the demand side has been able to absorb the supply side. But even cheese producers seem to be shifting their strategies a bit. We hear more contracts are concluded for the full quarter by end users and producers still want secure volumes for the next months.

This week: GDT and liquids?

For this week we expect the main information to come from the GDT on Tuesday. If the demand remains sluggish we expect this to hit the prices for WMP and SMP most. Butter and cheese normally aren't impacted that much by the GDT result. Listening to what our partners expect, we think we need to prepare for another bearish week for SMP prices.

We will also be watching the market for liquids closely. Last week we heard that producers were looking to sell forward cream for July / August below € 6000,- and raw milk got offered between 0.35-/0.40 cents. If they would continue to offer on these levels it seems most aren't expecting the market to become much more bullish in the weeks. that will follow. On the spot market we expect SMC demand to remain strong (Italy/Greece still look hungry for SMC). For cream, we expect more downside as butter demand is dropping fast.