A Bullish Europe v.s. a Bearish World Market?

The week is off to a typical GDT week start, with many calls and little action. Partners on powder are waiting for the GDT results, partners on butter are waiting for the price action on cream and partners on the cheese side seem to be to most active although not confident of any market direction. 

Speaking to partners about the expectations for GDT, it seems most expect a bearish GDT. Last week GDT Pulse gave the first indicator and futures on EEX and CME point to lower prices. As said yesterday, we believe buyers from the middle east and Asia that can buy products other than NZ products have a choice to buy cheaper elsewhere. A firm GDT would surprise us. Looking to China we saw a report posting that the US government expects Chinese milk production to grow this year by 4%. We think this number is easier to trust than the 8-11% we sometimes hear from Chinese sources. But it does show that China will be growing it own supply and in time will slowly pull back from the market as the biggest dairy importer.

But most of the EU market action will be set by the price action on liquids. With hot weather (next weekend we will be seeing 30 degrees in our backyard) and looming drought news articles, we think the sentiment might get favourable for sellers and less so for buyers. Because less milk, less smc and less cream on the free spot market will give sellers a confidence boost that what they have left to sell, will need to go at a high cost! Our attention will be focussed on the liquids market, and less on the result of GDT, as we think EU milk supply has more impact on the price than GDT taking or adding 1-2% to the price. Bearish note: If prices for liquids will continue to fall under these conditions it is a clear bearish sign that demand isn't as good as believed.