Bullish Bounce Or Just a Break?

Bounce or Break? That seems to be the question in the heads of most of our partners. We can see a bit of both for all the products we broker. The market seems to be a bit nervous with prices of butter moving roughly € 100,- to almost € 150 up from the day before during the day. We also see a slight increase in SMP prices (more on EEX than on physical). Cheese prices continue to decline in a steady slow pace

The bullish bounce seemed to come from a bit of buying activity on EEX futures that had already started the day before. The lack of sellers on EEX has been a problem throughout last year, and the low sales liquidity seems to be driving up EEX prices once more. But at the same time, we see the price of cream further under pressure and we hear prices for Polish butter on a further decline. Where during the day the market felt to be on a bullish bounce, at the end of the day it felt more like a break from bearishness.

After our bearish update from yesterday, we got quite some feedback on our market report (more than usual). With some partners finding our reporting too bearish, we did get a lot of confirmation of our analysis. Not only do buyers and traders see the same patterns, but more and more producers seem to come to the same conclusion. One senior partner (not working for a trader) whose opinion we value a lot summarized his opninon clearly and wrote to us:

"On a more structural basis we will see more milk in the next 6 months, that is something we are all certain of. Milk prices are solid, feeding cost are low and all indicator point to maximum milk production from the farmers. Especially now farmers face a very uncertain period, most would like to build up a bit of a financial buffer. With these milkprices and feeding cost, the opportunity seems perfect.

At the same time the situation on the world market is worsening fast. History teaches us this usually leads to lower demand. To my humble opinion there is only one scenario possible, and that is one of building stocks and decreasing prices."

It might be a bit in our nature to view the world through a bit more bearish glasses, but given the recent trend and the feedback we have been getting from our partners, we just don't see many bullish arguments in the market. The biggest bullish argument we see is the fear of the milk intake collapsing, and we agree that less milk will lead to fast-increasing prices. The current trend and feedback just all point to a market that should be more similar to last year, than one that is similar to 2022's market.

We expect today to give a more realistic picture of the current supply and demand balance. If milk and cream prices continue to decline to lower levels we expect to see commodity prices fall to further lows. We need steady quotations and steady liquid prices to break out of the bearish market trend.