Reflection Time

The market activity in the commodity market for EU butter, cheese and powders has slowed down a lot this week. Not only our volumes for this week are lower than normal weeks, but we hear the activity at our partners is slowing down as well. Producers sell less, traders trade less and end users buy less. The market has made some strong moves over the last 6 weeks and it seems that now it's time to reflect on what has happened. What has driven prices up? Has demand increased? Has supply weakened? Have uncertainties grown?  We went from a market without sellers to a market where both sellers and buyers have taken a step back. And what is next? 

We think the tight situation on the market for liquids has had the biggest impact (and still has). Prices for raw milk are still high and although cream prices are coming off a bit and SMC prices have traded lower... still all prices for liquids trade above the commodity prices, making additional production unlikely. The market for liquids needs to weaken a good bit more to really make an impact.

We think the biggest question mark remains the demand side. We have had some fierce debates about this with our partners Because where some think consumption in the end will remain steady the anecdotal stories about delays from industrial buyers, slow down in offtake from food service and disappointing retail sales are so widely spread that we can't be but negative about the consumption outlook.

It seems we are not the only ones trying to figure out these questions, and we are not the only ones without an answer. It seems more and more partners have decided to put their risk to zero (or as low as possible) for this year and wait for answers for next year. This might put the activity down for a longer period, but volatility might be up. Because in a market with almost no buyers and sellers, a few bids and a few offers can influence the market price a lot.