Good News for the Bulls AND the Bears

As expected the GDT traded slightly higher compared to the previous event. And although the increase was slightly better than we forecasted, overall the products performed as expected. It showed the biggest increase since April this year. But again we think this is a result where both the bulls and the bears can pick their data and argue that their market view fits best with the latest results. But we think we have to accept the fact that this result "won't break any pots" or "change any winds" in the current dairy market. 

The biggest winner on the latest GDT was WMP. And although most expected a slight increase, the 5.3% increase seemed bigger than any of the analyses we had seen. Due to the volume shift towards Pulse, we saw the same amount of buyers chasing a smaller parcel of product leading to a strong increase. But zooming out we see WMP is still trading at the lowest point since May 2020. We expect that this correction isn't yet the start of a new rally. For confirmation of a trend reversal, we have to look at next week's Pulse event.

The SMP volumes started off very badly and during the GDT it seemed SMP prices would fall to unseen levels. But as the rounds kept going SMP prices grinded up, keeping the damage smaller with a minus of 1.6%. Looking at the EU products, we still see prices trading at or just below € 2200,- prices.

AMF and Butter performed okay, but nothing spectacular. With increases of 2.7% and 1.1% the fat group showed plusses all over. We still see a relatively flat market outlook for butter. We don't think this GDT result will impact the butter price in the EU.

Bulls: Trend Reversal

The bullish partners in our network are already pulling the "we have reached the bottom" card. The higher prices on GDT confirm what they have been seeing in the spot market for the last 2-3 weeks. Low availability of fresh products (EU cheese market, raw milk, cream) and lower milk collection should market the bottom of the market. In addition, it seems North Asia is buying more volumes, supporting the idea that Chinese demand is starting to rebound a bit.

Bears: Only a relief rally

The bears in our network are playing down the results. The protein side still looks very weak and after such a horrible event like last week, a small rally was to be expected. WMP prices are still down roughly 6% from a month ago, the 10% fall from three weeks ago just was a bit much. In addition, they see that demand for North Asia might be better than the last event but is still well below the contracted volumes compared to a year ago.

Get Fair Dairy Outlook: Stable

We think there is a bit of truth in both. We do think most partners in the dairy market feel we aren't far from the bottom. But we see little details that are really boosting the confidence. WMP prices increased, but it feels artificial due to a volume shift. The fact that all of our bearish partners want to buy indicates that we don't they are expecting much lower prices, but most of our bullish partners want to sell using the GDT result, indicating they still have stock and aren't convinced they should keep it much longer.

And although we like a bit of volatility, it is healthy for the market to bounce a bit up and down around the current market levels. With a result like this, we expect EU commodity prices to remain stable as well. And if we don't fall lower, we don't expect any great impact for EU farmers, which should be good news for anyone in our network. Farmers probably won't be happy with the current contract milk price, but it should be sufficient for most to keep milking. In addition, we think that after strong food rally prices, we think it is healthy for dairy consumption demand for prices to remain at the current price as well. A return to prices of a year ago would hit dairy consumption in the long run.