Lower Prices Generate Demand(?)

Yesterday was a difficult day as a broker as the bids for all products we got went lower and lower, but because sellers could spot more buyers the offers went up again. The argument from the sellers, understandably, is that demand is clearly not covered as shown by the bids out there on lower levels. And indeed, low prices always attract more buyers. So is demand as weak as it seems? Or are buyers just playing the chicken game really well?

We would say it's a bit of both. Of course, there are a few daredevils among our buyers who will wait out the latest moment in the market to buy the product, but we see the same on the seller side. But we think the biggest reason for good demand on low levels is the big gap on futures. With premiums still between € 250-300,- for some origins, we think it isn't strange to see demand pop back up. Buyers who need to buy futures are currently faced with a less liquid market with fewer sellers for futures than we see on the physical market. And although it feels the group of buyers who can take the spread physical v.s. futures, we still see some who can play this game.

Speaking to partners today there is still doubt of how far the market can trade down from where we are. And as discussed in our update yesterday, we aren't convinced the way down is much bigger than 5-10% tops. But that said it seems likely we will go down a bit more from where we see today's price.  We did receive a funny Meme (we live in the age of memes now) that we do want to share with you as we think it is a perfect description of how the market feels at the moment.

We think the dairy market isn't collapsing (and will not collapse) as long as the market thinks these three pillars can push the market back up again. And we think all three are scenarios that should be considered seriously. What is missing in this picture is the three monsters trying to push down the building further; inflation, lower demand, and export competition.