Correction or Capitulation?

Last week the dairy market came down a lot. Prices for butter lead the way, but we see the same direction for cheese and powder prices. Butter came down from € 5400 on Monday to € 5050 on Friday, Gouda came down from roughly € 4000,- and ended with offers below € 3900 and SMP prices went from offers steady above € 2400 to steady below € 2400. The question is what will happen this week? Will we see the market bounce back up a bit? Or will commodity prices capitulate and crash back to last year's February Levels? Friday afternoon action might indicate a small rebound!

At the end of last week, we didn't see as many sellers anymore as we did during the week, and buyers who wanted to wait during the week realised that their waiting time was over and came to the market to buy. But as we have seen many times, as soon as buyers step in, sellers step out! From a supply and demand point of view, we didn't see any new information. Moreover, the buyers only appeared in the butter market, and buyers for milk powders and cheese remained absent. Looking at the butter market it seemed some short sellers wanted to lock in some profits on Friday. The term "Buy Back Friday" was mentioned multiple times. But as most came at the same time, the momentum was gone and the market went quiet.

Eucolait Event: Sentiment Booster!

The first days of the week will be a bit quieter than last week we foresee. We have a lot of partners going to Brussels to meet with their counterparts in the dairy industry and discuss the market and its outlook. Unfortunately, we aren't able to attend this year but we hope to be getting some live feedback from our partners there. With a lot of decision-makers from the dairy industry in the same room/bar, a negative or positive sentiment can get an extra boost.

Liquids: Will there be more?

After the Euccolait event, most partners will be looking at the availability of the spot market for liquids. The lower cream prices last week pulled down the butter market. If cream prices will fall further down, we expect the butter market to continue to show more weakness. But at the end of last week, it seemed some liquid traders were a bit sceptical about lower prices. But there seems little doubt about the milk supply being ok. Nobody is expecting record milk numbers, but the output is a lot better than some were expecting. Therefore the market doesn't need to process a big plus of milk, but it does need to process more milk than producers forecasted in their books. This additional supply is putting additional commodities in a market that is not really asking for any extra.

Volatile February

Last year the market in February took a crazy rollercoaster ride. Exactly one year ago we started the market with prices for butter at around € 4200, prices for cheese at € 2800 and SMP prices ranging between € 2400 and € 2500. But by mid-February the uplift in retail demand boosted prices up to levels for butter of € 5000, and cheese to € 3400, only SMP prices continued to trend lower. At the end of February, we traded back roughly in the middle of the lowest en highest prices.

We would not be surprised to see a bit of February volatility as well During the dip in demand in January and the increased supply the market also seems to overreact a bit in its bearish views, and usually improving retail demand in February is boosting a bit of confidence among sellers.

We expect a quiet start of the week where buyers might be willing to pay slightly higher prices than seen on Friday, but mainly for the butter market. Without an uplift at the beginning of the week, we might see the market continue on its downward path from last week. For butter the € 5000,- level is an important one to hold, we think that once we break below the € 5000,- we might see the market capitulate to last year's price levels. For cheese prices we see little reason for them to improve, more offered volumes from last week at lower levels didn't attract any spot buyers, we would not expect anything to change this week unless we see a significant price shift.