Back to the (EEX) Futures

In January, within 25 days, we lost about € 1000,- per mt on the butter, about € 1000,- on the cheese and € 500,- on SMP.  It has been one of the most brutal drops we have seen in dairy. But the recovery in February is maybe even more remarkable. We are almost back where we started in January because within 8 days butter is trading back between € 4600 and € 4800 (up € 700 to € 900), SMP prices are trading again between € 2500 and € 2600 (up roughly € 300,-) and cheese is showing its most modest recovery with "just" approximately € 300,- increase from € 2750 to € 3050,-. 

Looking at the valorization we see 2 scenarios that are most likely. Either the cheese market needs to follow the line of butter and SMP toward € 3500,- or butter and SMP are over-correcting and need to trade back down toward € 4500 for butter and € 2350 for SMP. The difference in valorisation at the moment is too big. Or as one trader told us, you should be short butter, SMP, and long cheese to be without too much risk and logically make some money. (no advice from our side)

It seems that future markets are getting a firmer grip on the dairy markets. Strong impulses on the EEX, make a firm impact on the physical market. We saw this Tuesday for SMP as well. Futures traded up to € 2660,- and physical demand followed quickly. But after a correction a few hours later these same EEX physical buyers stepped away from the market again. Butter markets yesterday showed the same impact. As buyers for EEX futures were faced with a market without much selling interest they needed to confirm higher offers, immediately pulling up the physical market. Maybe it's the lack of liquidity for Cheese futures that is keeping this market relatively steady.

The market at the moment is giving us more questions than answers, and most of our partners seem to be faced with the same questions. What is the fundamental driver behind these increasing prices? We don't know, we even believe that there aren't any real fundamental drivers behind this rally. But as stated in previous reports, sentiment can be stronger than fundament. And at the moment we are in a very bullish sentiment that doesn't appear to be going away anytime soon. For now, its seems we are back to where we were 5 weeks ago.