Weekly Update: Supply Surprise?

Last week was the first more active week of the year. We see that most participants are back, the New Year's wishes are made and it feels that we are back at the market as usual. The activity was visible on all products and for all products the dynamics are roughly the same. Worldwide we see prices creeping towards each other creating a more plain playing field between the different continents. The trend in the US and EU seems to be slightly negative, and NZ prices are recovering a bit. So what is to be expected for the weeks to come? 

In the EU we see prices slightly under pressure, but we haven't seen any major correction yet as we have seen in the past. The milk supply is strong enough to put a bit of pressure on the suppliers, but the pressure is very well manageable so far. Low stocks at the supplier's side give them room to build a bit of stock first before selling commodities at lower levels. Most suppliers we speak to are still very negative about their milk collections and therefore expect prices to recover once demand picks up again. Therefore the only pressure we see is for fresh product producers rather not store.

And with NZ going out of season most producers who supply products traded on the world stage expect buyers to start looking at the EU for supply again. Especially SMP producers are convinced demand will come back again. With low stock and low production numbers from the last 6-9 months a spike in demand might reveal the bullish stock situation in the EU and set fire to EU SMP prices (so is their reasoning). Although competition from the US might keep buyers away from Europe a bit longer than some expect. The same some expect will happen for cheddar. With US cheese prices still well below EU cheese prices, it might take more time for export buyers to come back with major demand.

Supply Surprise

The fourth week of the new year is usually surprising. We have looked back at previous years and in the fourth/fifth week, we have seen trend reversals and/or trend boosts. It might have something to do with the fact that around that time the new year reality hits the market and either buyers or sellers need to adjust their market view. If the end of last week was a little peak into the future we might see a bearish boost. We saw a bit more cheese and butter offers hitting the spot market and we hear more and more suppliers are calling our partners (and us) asking for a bid for some additional spot volumes. If the sellers have forecasted their sales a bit more conservatively (as they did in the previous months) this might be the first month that production is overperforming budget and spot buyers aren't picking up the remaining volumes as easily as in the previous months.

We expect the market trend from the previous weeks to continue a bit, and we would not be surprised if fro some commodities the prices will correct a bit stronger. With softer weather in the forecast supply wont be a concern for many, but demand might just be. We wish everyone a lot of wisdom and would love to get your feedback on your market views. Feel free to reach out! Happy trading to all!