Signals of a recession, or do we just need to clear the stocks?

Last week was a week with a lot of activity. We did expect a more active market, but we also expected a bit of volatility. The markets however seemed to be holding on to a steady level with a slight correction downwards for products in the month of June and July, prices in Q3 and Q4 remained firm. The GDT wasn't as outspoken as we hoped it would be so the signal from the export markets remains very unclear. In addition, cream and smc prices didn't give any cause for price volatility for commodities either. 

The expected upward trend for liquids didn't start yet, but with the current weather forecast, we still expect raw milk, cream and SMC to trade higher this week (and potentially pull the prices for commodities up). We also saw more activity from producers, looking to sell forward in July/August (and some in September) as they are preparing for the summer holiday season. The biggest surprise last week was the absence of end users. We would have expected more end users actively looking to cover Q3. The question we got asked a lot is, are they already covered? We just don't know, it would explain the unusually high activity from the first months of this year. So with sales pressure from producers and potential price pressure from liquids, this promises to be another fun week.

We also read an interesting article this weekend on www.fd.nl. The article is in Dutch, so for out Dutch friends, please read it here!  The article basically looks back at the previous 3 years for the dutch Economy. In 2020, when Covid broke out, demand for Goods and Services dropped heavily. But in 2021 (the year of the smart lockdowns) demand for goods skyrocketed, but the demand for services was still down! Instead of going to the restaurant, we bought a BBQ, we didn't go to the barbershop, but we bought a do-it-yourself set, and instead of going on a holiday, we bought a new lounge set for in the garden to enjoy the luxury at home. All producing companies produces at 150% capacity to fulfil demand as pipelines were empty and everything that left the factory went straight to the consumer.

In 2022 the world re-opened, and demand for service jumped up! We finally could go on holiday again, visit the theatre, and restaurants and go out and do fun things. Demand for goods dropped quickly as we didn't need the good anymore (or had already bought them). But the industry kept producing, filling up the pipelines and filling the warehouses.

And now we are in 2023. We see that the production in April dropped 12% compared to a year earlier. Warehouses seem to be full and consumers still rather spend their money on experiences, and less on goods. The biggest question the article asks, are we at the start of a big economic recession where demand will remain low? Or do we just need to wait for warehouses, and pipelines to get cleared again by consumption and will we start growing again?

We think this is the exact question we are asking ourselves, and many of our partners with us. I think we can all see that warehouses are full of stock, there are signals that some industries (we keep hearing chocolate industry, sweet industry) aren't performing as well as forecasted and export destinations seem slow in their offtake. But is this a temporary hick-up? Or is it a signal that the world is starting o prepare for a recession where demand might fall back for a longer time? Those with the answer to this question will be rich at the end of this year. But speaking to most partners, it seems nobody has a strong opinion. 

The writer of the article summarizes it as follows.

"It is too soon to draw any conclusions from the first indicators, that's why I present both scenarios, so in the end I can always claim I was right!"

We join him in his conclusion.