Milk Intake v.s. Stocks and Demand

Yesterday the market traded all over the place. We got a bit more offers for powders, but buyers did not make any effort to improve their bids. Cheese prices are shooting through the roof, and butter prices are... all over the place. A slightly firmer Pulse confirms the trend for commodities is up, although we can't really speak about a rally. It is a confusing market for both our sellers and buyers. And the traders are also not sure about which direction the market will take. 

The dairy market of 2023 is a market that tells us two stories. One story tells us something about the past, and the other one tries to tell us something about the future. The story about the past tells us that we had too high milk prices that have boosted supply and killed demand, leading to higher stocks. These stocks are capping the upward market potential at the moment. And with demand still down due to higher prices, it will take time for these stocks to disappear. The other story is about the supply side of the market. Milk production in France is down a lot, leading to a tight spot market. Milk production in the EU is very unlikely to grow in the next years and with the French milk declining as fast as it does, there is reason to forsee a similar market as we have seen in 2021.

At the moment the dominant story told is the one about our past, and the debate we are seeing today is about how fast we will transfer into the story about the future. This is why we would describe the market sentiment as extremely nervous. It seems there is no discussion about the fact that we will see high prices again, but who will carry the current stocks into 2024? Who will take the product that will expire before prices go back up? Who will finance the long positions? The transition period until the stocks are no longer an issue is going to be a nervous and long ride.

We are on the team that thinks we need time to forget about the past. High stocks are a problem in a market with low demand, high financing and stocking costs and no clear forward curve that allows a cash-and-carry strategy. We would expect the big turnaround to happen after the next EU peak, but until then we will continue to trade in a nervous rangebound market where we see butter between € 4200 and € 4600, cheese between € 3200 and € 3600 and powders might have a broader range between € 2200 and €2500.

The next three days we will be a bit harder to reach, with some travel time and meetings in our planning. For urgent matters, please send us a WhatsApp so we can follow up as soon as we connect to the world again.