Upside Risk, Downside Pressure

This week hasn't been the booming week we expected it to be. We might have expected GDT to go up a bit, and we expected the liquid market to show a bit more bullish signals, but none seem to be the case. GDT came in a bit weaker, liquids are trading flat compared to last week and commodities have been slowing a bit down. But to talk about a bearish market would be too soon we believe. 

Yes, there are stocks, yes spot demand isn't great and yes, the export market isn't much alive. But we still see buying interest for H2+ Q1 next year and very few sellers. The risk of higher prices keeps buyers actively buying and sellers from selling. And this might continue for a few more days/weeks/months.

But the effects of this continuation of buying at these higher prices do result in higher milk prices for farmers, and therefore a lower this farmer payout price isn't expected to affect production too much in the second half of this year. Therefore we don't foresee a firming market in the second part of this year. We think we will continue to trade in the same range we have been trading over the last months.

We believe the biggest impact on commodity prices will be the demand/supply ratio on the export markets. Looking at NZ we believe they will face a strong season, and with their biggest buyer only buying a small percentage of what they have been buying, we think worldwide competition will grow. Chinees export have fallen by 7.5% over the last month indicating their economy isn't as good as it was. Their imports have also been down on the previous years (not only dairy) indicating internal demand remains low as well.