Unsurprisingly Surprising

Yesterday was again quite an active day. The fat market continued to trade lower to the surprise of many of the buyers who jumped on the quickly rising market last week. It remains surprising that after such a rally that seemed to be fuelled by a lot of buyers and no sellers, is now corrected by a market with a lot of sellers, and no almost no buyers. At the same time, the cheese market remained inactive. We get bids and offers for one or two trucks, but no major demand yet. And last but not least the market for powders anticipated a significantly lower move on GDT in the morning, only to find the SMP price trading higher. 

Looking at the GDT results we saw a lot of people surprised. SXG futures indicated a much different expected result. Because SGX fat futures traded significantly higher, the butter price traded lower than the previous event. But as surprising as it seemed for some, it is unsurprisingly when you would watch the trend on CME and EEX butter futures.

SMP futures indicated a much lower price expectation, but the tenders dragged on longer than usual pushing the SMP winning prices roughly 2.5% above the previous GDT. A surprising result, but the higher demand was visible in the market in the previous days. Most of our partners also seem to agree that the € 2400 price for powders is a long-term floor that doesn't need to be lowered in the near future. The biggest question seems to be when prices might increase further. It does seem that the EU has produced a lot less SMP this year, and it exported more volumes. That should tell us something about the current S/D balance.

All things put together it seems all directions the market took in the last 2-3 weeks have been amplified a bit by the lack of market participants. In our view, the butter market needed to trade a bit higher, but the 10% increase in a few days was too much and needed to be corrected (as the CME butter market did). For powders, we see a bit of the same happening. SMP prices went up quite dramatically and have now corrected back down. But a further correction seems unlikely. If cheese will see a similar correction we are not sure. The age of the Gouda and Edam we see in the market doesn't boost our belief that cheese prices will fall back down soon.