EU Needs Exports for higher prices

Last week was a relatively slow week from our perspective. On Monday and Tuesday most of our partners were visiting or exhibiting at the Anuga fair in Cologne, on Wednesday most were travelling back and the rest of the week seemed to be used for internal discussions and future market expectations. With lower activity and lower brokered volumes, the market seems to be preparing for a final rally in 2023. 

Looking at the internal supply and demand dynamic we would expect prices to drop. Milk supply seems better than some had forecasted and demand has been away for a long time. We see the market for liquids showing its first cracks, and we wouldn't be surprised to see a bit more this week. While the cheese market seems to be holding up quite well due to a balanced supply and demand within the EU, the powder and fat market seems to be relying on demand from outside of the EU.

For the powder market, the internal demand for feed seems okay, but for food-grade products, we see little demand. On the export market, there does seem to be a bit of demand. The biggest question there seems to be who is going to supply. With a stronger dollar and a firming CME market, the US seems to be outpricing itself a bit compared to the EU. Therefore we wonder how this week's GDT is going to behave. Looking at the SGX futures and the last GDT pulse it seems the rally for SMP and WMP is far from over and we could see another round of buying from the export markets as well. We would be bullish on powders, even with lower prices for SMC we expect prices to increase further.

On butter, we see a similar picture as for powders. Internal EU demand has been gone for a while and is very unlikely to come back. We haven't seen buyers when prices were low grabbing the opportunity, we haven't seen many buyers at higher prices as a result of panic buying, and we don't expect to see any when prices decrease or increase further. We do see good demand in the export markets still. Turkey, Ukraine and other North African countries still try to lock in some volumes, and although the resistance is strong, we see them expanding higher prices every week. Looking at the SGX futures the price of butter is likely to increase as well.

But where the powder is much more a worldwide commodity, we think butter is a much more EU-orientated product. With high demand for powders and a seasonally increased milk intake, we expect the cream to show more availability in the weeks to follow. Good export demand for loading until December might keep the market stable between € 4600 and € 4900 for the weeks to follow, but we do expect prices to drop back down after mid-November.

It seems that Q4 prices this year are influenced less by spot demand and Christmas production, but more by the demand and developments on the export markets. We expect to see increased upward pressure for all powders (SMP, Whey and WMP) and a short-term stable outlook for cheese and butter. Depending on how milk volumes will develop over the months to follow we do forsee a difficult Q1 for cheese and butter although we think the price pressure will only be visible in a few week's time. For the weeks ahead it's bullish expectations for most commodities from our side.