November Volatility: A Rollercoaster Ride

November has proven to be a very volatile month in the previous years, and this year it seems to double down on its reputation. The big questions didn't change that the market faced last week (about less milk v.s. less demand) but the mindset of some partners did. The fast-changing price direction in the commodity market can be a frustrating thing to watch as some partners that aren't involved in daily trading have a hard time keeping up with the changes. Last week the most asked question was: "What market information changed that pushed prices up?", today we have the same question, only the word "up" has been changed by the word "down!"

With prices of butter shooting up last Tuesday from € 5050 to € 5650 in Q1 and even € 5780 in Q2 on Thursday, we are now trading back to levels at € 5350 for NL/DE/BE Q1 and even € 5100,- for Irish winterbutter. But it seems the powder market might bounce back up a bit. With more demand for powders from the export market we see more EU partners start to look for SMP as well. SMC prices for spot even increased to levels reported between € 2600 and € 2650.

At the same time, we hear prices for farmers are on the rise again. Aware and Campina keep increasing the milk price and the potential farmer profit increases again. The fear of less milk in Q1 starts to disappear a bit every day and coops will have a clearer view of their forecast for Q1 in the next weeks. We expect offered volumes by producers to increase over the next weeks as their sales window for Q1 is now roughly 5 more weeks before we see most partners prepare for the Christmas holidays.

GDT Expectations: Slight increase

The GDT events can be game-changers when they are at key moments in the dairy market. From our point of view, it feels this might be such a moment. The market seems to be topping off for butter, and bottoming out for powders. At the same moment, we have partners at a big trade show in Shanghai and most of our EU partners have delegates sent to the Gulfood in Dubai. The trade fairs can boost whatever signal this week's GDT gives.

Looking at the EU market we see that the market price has been affected by relatively small volumes as both the buyers and sellers side has been very inactive. Small groups of buyers (or even a single buyer) can push up prices. And it only takes 2-3 sellers to push prices down. But the volumes of offered volumes and buyers at the GDT are a fair(er) reflection of where the market trades. Even the GDT Pulse volumes have been said to be too small to give a real indication of the market dynamics.

We expect powders to perform better than futures suggest. The surprise among all our partners about the negative result on the GDT Pulse makes us think the buyers might have been waiting to take a bigger piece of the cake, rather than to compete for a relatively small volume. Combined with the fact we, and our partners, have been receiving more requests for proposals for SMP in the last few days, we think SMP and WMP both will trade within the small margins of a -1 and a + 1%. We do have to admit that futures paint a darker picture and have been spot-on at the latest events, so we might be off a bit.

Butter and AMF are forecasted on the SGX futures with a strong increase. This idea seems to be fuelled mainly by the rallies on CME and EEX butter futures. But with both markets already showing a significant pullback we wonder if we have been watching a technical short-squeeze on worldwide fats. GDT butter prices are well below the world market, so that might still be a reason to be bullish for both products. We do expect a bullish result for butter and AMF, but with EEX and CME prices dropping back again it might be less impressive and around +1-3% only.

Overall we expect a positive result for this week's GDT with roughly 1-2% increase. The big question is how the market will digest the results and how it impacts the sentiment. Because it feels the market in the last weeks has been showing price movements based more on sentiment and less on fundament.