Weekly Update: Eyes on the International markets

Last week the market took some time to start up, and activity was low, but at the end of the week, we saw a bit of activity returning. We brokered 1250mt last week, but we see more action on SMP and a bit on butter. Our cheese market remains very steady with most participants accepting the average market price. The butter market remains nervous with big differences between different origins, periods and partners. As said in our updates last week, we see that the lower prices are giving some support to dairy prices, but the big question remains whether it is enough to cope with the EU milk flush pressure.

EU Milk production

Speaking about the milk flush it seems colder weather is pushing the peak a bit further out. Ireland has had cold weather for the last weeks and after an already slow start of the year Irish milk is taking another "hit". Our more bullish partners foresee that Irish producers might have oversold a bit and their activity will slow down over the next weeks. Our more bearish partners seem to think it only postpones the inevitable, and that is that Irish producers will have a hard time coping with all the milk during their (postponed) peak. Hig spot volumes, combined with a high milk price, these partners expect that producers will look to liquidate stock and avoid speculation that prices might increase over time again. We agree that after speaking to our Irish partners we don't think anyone feels confident that commodity prices will rise again quickly. But as most don't want to speculate on higher prices, they will not speculate on lower prices, keeping their month-per-month sales strategy in place.

The peak in Western Europe also seems to come a bit later, the curve is a bit flatter than in previous years, but in some countries, it is still above last year's milk collection. Warmer weather in the weeks to come will give an extra impulse to European milk production, but it might also push the consumption of fresh products and ice cream up. So both bullish and bearish people can take their information and spin it to their advantage. We do wonder whether the French milk collection is as bad as it is being reported on a week-to-week basis. During February milk volumes were reported down between 1.2 and 2% compared to the year before, but the official number for February is 1.2% down. The Dutch milk collection in February was up 4% compared to the year before.

Looking at the spot market, at the end of the week, we did hear that there was more liquid milk available. and from Germany, there was a lot of whey concentrate available. This is feeding the expectation that cheese production is getting an extra boost at the moment, the effects of this should be seeable in 2-4 weeks if production is indeed up. Cream prices a the end of the week also came down again a bit after increasing firmly in the first days of the week. If the trend of the spot market is an indication for the EU commodity market we expect a lower trending market.

International developments

This week we have to keep our eyes out on some international activity. The Soummam tender will be finalized. The first feedback is that the US and NZ took all the volume for WMP/FCMP and SMP indications came in at € 2350 / $ 2600,- CFR. We expect that European producers will take a good part of this volume, this might pull a bit of pressure of the market, although volumes are relatively small.

The US dollar is still under pressure, impacting international trade as well. This weekend the euro/dollar fx rate hit 1.11,  the highest it has been since March 2022. For Europe, a weaker dollar will make it even harder to compete with the US and NZ on the international markets. Expectations are that we haven't reached the final level yet.

Looking at the US, we read that WASDE increased its production forecast due to a larger expected cow herd. In the US, NFDM, butter and cheese are under pressure as spot milk has a hard time finding an outlet. CME futures for all products have been trading in a downward trend for the last 12 months. Looking at the trendline, the bottom isn't reached yet. In addition, the US is expecting lower exports due to stronger competition from the world market. Looking at the US, we don't think the market has bottomed out there yet.

Last but not least we will have the GDT on Tuesday. Expectations from our side are low and we expect the trend of the last months to continue. Butter, AMF and WMP are expected to trade down, the only relatively "strong" indication we see on futures might be the SMP market. But with strong competition from the US en EU we don't expect buyers to be aggressive during this event. In the last weeks, we read more reports about China. A higher milk output, a high inventory and lower consumption have pushed expectations from some analysts for Chinese demand to return to late 2023. Our expectation is a negative GDT between -2 and -4%.

Overall, we think most of the action this week will be caused by international events. Looking at the EU, we see most buyers and sellers are still quite relaxed, apart from some nervous/bored traders producers and end users have kept their activity low. On butter, we did see a small rally on Friday, but we are not sure this rally will continue if the cream weakens and the GDT hits new lows. The EU butter market remains a sentiment-driven market. We wish everyone this week good luck and happy trading!