Dublin Doubts

Yesterday we travelled to Dublin to attend the StoneX conference. Travel days aren't the best days to stay connected to people, and most of our partners were on the road or in the sky themselves. Therefore we haven't been able to broker any deals or have a lot of debate about the market during the day. Fortunately, the day ended with an opening drink in a lovely bar in Dublin, bringing together a lot of our friends and partners so we were able to debate the market in person. And the overall sentiment? Doubt!

With a big conference day ahead of us, we think we will have a clearer picture by the end of the week about the market. But it was very clear that most of the people we spoke to are doubting the bullish sentiment we are seeing today. The price rally in the last few days seems more sentiment-driven by a tight milk supply caused by extremely warm weather, and most argue this is a temporary effect. And if we are informed correctly the first signals of sone easing in the market are starting to show. And while we hear that there are different expectations about the mid-term supply side, the range differs from a slight plus in milk collection for the next 6 months YoY in the EU v.s. a slight decrease YoY. The impact of the supply change should not be to dramatic.

Demand, Demand, Demand!

But the biggest discussion was not about the supply side of the market, it was more about the demand side. Internal EU demand seems okay-ish, but some partners were a lot less positive than we heard them before. The summer demand seemed roughly flat on last year, but Q4 demand still isn't showing (yet?). French consumer demand seems to weaken, while at the same time, French farmers are finally getting a "better" milk price, potentially throwing the French supply/demand balance around. French milk supply is suffering a fast decline, but not all partners expect the -2/-3% fall we have seen in recent months to continue.

The biggest worry is around export demand. Chinese demand is incredibly important for the worldwide dairy market and with Chinese exports falling, the forecast for their internal demand is also shrinking. On top of the shrinking dairy demand, their production is expected to continue to grow. We read in a Rabobank report that the forecast for the second part of this year is still roughly 3% growth. So the Chinese supply/demand balance is worsening as well.

Stocks, Stocks, Stocks!

This is the biggest question mark for us. Because while reports show stocks in the EU are high, and while we see older products still coming to the market (last week we traded a few trucks from 2022 even) it seems producers are keeping their stocks as low as possible. Some producers even claim to be in their lowest stock situation in history (or nearby history). And where some explain this as a potentially bullish situation (no stocks mean demand will spike prices), others have bearish reasons to keep the stock low. Because if you expect prices to rally in the near future.... then you would expect producers to keep some stocks. Producers with a bearish outlook try to have as little stock as possible.

We think we have seen a stock shift from producers to traders and end users. It also explains the lack of demand for Q4 from the industry. Most still carry sufficient stock to last them until year-end. Traders seem to carry stock to protect them from a price rally on the short contract they have in their books for 2024.

Butter: Cooling Down

It feels like the butter market in rallied in the last days on the sentiment of expensive cream. But with cream stabilizing (and some hear lower offers) and more butter coming to the market at higher prices it seems the short rally is already cooling off again. Most partners seem to think the supply/demand balance for butter is still oversupplied and will last probably into Q1 next year. We do hear that there is strong support at prices between € 4200 Irish butter and € 4400 NL/DE/BE butter so much lower prices at this stage are unlikely.

Cheese: Undersupplied Gouda

It seems the cheese market is undersupplied for Gouda, but well balanced or even oversupplied for most other cheeses. September Gouda demand remains strong and stocks are low. Partners differ over the outlook for Gouda in Q4. Some expect production to ramp up and prices to drop back toward € 3300 soon, other expect the disbalance to last, keeping prices above € 3500. We just don't know. Cheddar on the other hand seems plenty available, We hear deals done at € 3500 exworx Ireland / € 3600 DAP on the continent for October and some even say Q4. The mozzarella price floats a bit in the middle. We still see buyers around € 3300 for Q4 without finding a seller.

Powders: Most debated product

The powder market sparks the strongest debate among our partners. Where the bears mostly point toward Chinese demand the bulls might have a bit more arguments to feel they are right. Oil prices are high and that usually gives some buying power to buyers of SMP and WMP. Prices have gone up a bit and it's hard to find offers from producers for closeby call-offs. With Algeria back on the market today it feels that short-term SMP prices might rally again, if it can be sustainable we aren't sure of.

Dublin Doubts

So in conclusion we see that most partners in Dublin are here with doubts about the market. Doubts about the upward potential, and doubts about how much lower we can go. Most hope to find some direction in the numbers that will be presented in the days to come. We will be listening ourselves and hope to find some direction, but summarizing what we heard yesterday the most likely scenario is a flat market for the next few months.