Higher prices Attract More Sellers

We started the week relatively active. With higher prices we see that some buyers start to accept that the expected lower prices are not coming back any time soon, so we managed to trade a bit of quantity during the day at slightly higher levels than the week before. But as we also see, higher prices, attract more sellers. And we have said this before, sellers should not get greedy and try to get € 100,- per mt after every deal, because in the end, higher prices not only attract more sellers, they also kill demand. 

The lower milk intake and the tighter spot market for liquids seem to be the biggest cause for concern. That makes this small rally not demand, but supply-driven. As one trader told us: "We don't see more buyers, we just see less available volume for raw milk, SMC and cream". Our biggest concern is that this supply-driven rally comes at the lowest point of EU milk intake, so how much should we read into this? If such a rally appears during the flush, it would be cause for concern that supply cannot fulfil the demand. This is why we aren't that convinced the market will really much higher.

Because we spent some time today speaking to end-users/buyers. The numbers between different end users differ a lot, but they all follow the same trendline; demand is down, and stocks are sufficient. We have very few indications the demand side will change quickly and that makes the supply/demand balance an odd debate.

Supply Down, Demand Down,

Putting it all together it feels the debate isn't if the milk supply is shrinking (most agree it is/it will be). The debate isn't either whether the demand is down (most agree it is and it will be). But the biggest question is, which decline is having a bigger impact? We will try to answer that question in the days that will follow. But it seems the demand for some commodities is down a few per cent, while milk production might only be down 0.2-0.5%.