Daily Dairy Digest: 28th of March

Yesterday our day started with a bang. In the early morning, we traded 330mt of butter and we prepared for a day of activity. But after these trades, the market turned quiet again. Buyers are not easy to find at the traded levels as most aim for much lower prices. We do hear that the producers did offer more and cheaper volumes, but for most of our partners there simply isn't a profitable trade to be found yet.

Looking at the latest market info in dairy we continue to see the same trends Germany is milking more compared to a year ago (roughly 2.5%), and France is still down on last year's levels (roughly 3%). Overall it seems Europe is still milking 1-1.5% more, this is in line with US milk production. In the meantime, we see that contract milk prices are going down fast. Friesland announced their milk price to just below 45ct  and is now paying 15ct below the price in January. But even at 45ct, we hear that most farmers are still able to make a small profit. We expect the milk price for May to drop again, but with most cows out in the fields, we don't think milk intake will be impacted directly. Later in Q3 farmers will have to make hard choices that will impact the dairy supply.

We did see these graphs from one of our favourite analysts from outside of dairy. On the first graph, you can see a graph that basically shows how much liquidity households have. During the pandemic, these savings have gone up significantly, but in the latest months, they have dropped dramatically. And it seems to be linked to the development of "real wages". Even though wages are going up, combined with inflation households have less money to spend and they have to use their savings to fill up the gap. It might explain why demand doesn't seem to go down as fast as we might have expected. Households seem to have used their savings to keep their spending pattern steady. But you might wonder how long it will take before these savings start to run out and a broader group of households will have to start watching what they buy.

Looking forward to today: Today we expect to see more activity in the liquid market. First signals are pointing to lower prices, but Mondays are usually not the best indicators. We also expect to see more action on the butter market. If end users will not call for more business, we think producers will have to lower their offers to attract business. For cheese we expect that this quiet market will last a bit longer as producers are still negotiating the retail price for cheese for the next months. Usually activity increases after these deals are closed.