Daily Dairy Digest: Lets talk about drought…

The trend of the previous days continues to be weak. Yesterday the market for cheese and butter took another step down both physically and on futures. Feedback from most partners seems to be that the lack of buyers close by and the overwhelming amount of offers is worrisome. We should always be careful to have a blind eye to the reversal of the market sentiment, but the current trend seems to be the friend of those who benefit from lower prices. 

We did read an interesting article about the current "winter heatwave" we are seeing now in the EU. Though it might impact dairy production in a positive way for now, we might see negative effects in the summer. We know it sounds silly to talk about drought after a forecast of rain for the next two weeks, but these high temperatures might impact the water level in the summertime. As there is a lot less snowfall and cold in the mountains in central Europe, experts warn that we will see a lot less melting water during the summer. This melting water is transported through all of Europe from Switzerland and Austria.

We still remember the low levels in Italy and France but also here in the Netherlands this summer when boats weren't able to go over all the rivers. We still believe that in the short-term milk production has all the conditions to dominate the supply-demand discussions. More milk will come from soft weather, lower production and on-farm costs, and high pay-out prices. But the second half of the year conditions might reverse when pay-out prices will be lowered and production conditions might not be as favourable as they are today.

Our short-term outlook remains (extremely) bearish, but we urge everyone to keep a keen eye on the second part of the year, as we don't want to be caught by surprise again.