Higher Offers for Fewer Buyers

"Yeah, It's a bit unclear" This has been the response from most partners. It's in line with our update of yesterday. Spread trades are still possible, although most producers seem to be willing to try some higher prices. The offers were are getting are going up, but the amount of buyers is shrinking at the same time. So we see higher prices for fewer buyers.

We think that's what sums up the market, and it explains why our activity remains on the lower side. In all commodities we broker producers are seeing that on low levers sales seem a bit too easy, so they prefer to try and sell at higher prices. So far we haven't seen the market following along yet, but buyers might get nervous.

Looking at the news in the world, we see some concerns from our partners about Chinese demand. As the entire market is hoping for Chinese imports to go up again, it seems the only thing up in China is milk production and exports. We invite you to read the following article we found: https://nzfarmlife.co.nz/chinas-post-covid-zero-milk-glut/. With a 10% increase in milk production and an almost 5% drop in consumption, the Chinese supply and demand balance has shifted. And there are no signs that production growth is slowing down. Expecting Chinese demand to return in the next months seems to optimistic, and NZ will have to compete on the world market more to get their product out of NZ. The expectations are that they will produce more SMP and butter as WMP prices might get below SMP prices (again) if the current trends continue.

For Europe, this means that competition in Q3 will still come from two fronts, the US and NZ, and with a weaker dollar, EU prices might be hit harder again. For the third time this year, the fx rate is testing the 1.10 levels, and if they break we might see the dollar use more momentum against the euro, making exports from the EU again harder.

Worldwide demand remains a problem, but short-term uncertainty keeps producers from selling forward and buyers actively looking to secure supply further out. Although we do see that demand for Q3 starts to slow down, and most buyers focus on September + Q4. Therefore our expectation is that the reasonably balanced market might hold for a few more weeks before we will see a stronger correction. As soon as buyers are covered further out and the premium will disappear (buyers don't pay premiums for Q1) we expect the market to correct further in Q3. Because if all traders, producers and end users expect higher prices in Q3, be sure that they have all anticipated on this strong increase. And if all market participants have the same strategy, we think that the a market turnaround might not come at all.