Is it a Duck?

Someone texted us today: "If it looks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck". We had a good laugh and we have to agree with him. Why can't we at Get Fair Dairy name the market as we see it? Because most of the commodity prices are moving up, spot milk is tight, and GDT results are bullish for two events in a row... so are we looking at a Bullish Duck? Or is it still a Bear wearing a wig and dressing up like a Duck?

We have been asking ourselves this question already for a few days. Why can't we shake our bearish feelings about the market, even when all the numbers point toward tighter supply and higher prices? Maybe it is our bias because we have been so outspoken on the bearish side. We have to admit we find it hard to switch market views, but it might be harder to ignore the bullish arguments in the market.

The GDT results have been surprisingly firm in our opinion. Of course, the headline result is still 1% below the future forecast, but it's way higher than most of our partners were expecting. With a 4.6% increase, we haven't seen such a result in the past 18 months and we didn't check back longer. All major commodities are clearly in the plus, only cheese underperformed. Cheddar prices have decreased, and this seems in line with the EU market tendency.

On powders, SMP stole the show with a 5.4% increase and WMP prices increased by 4.6%. Most were expecting less upward motion as more products went from the GDT to Pulse, putting the expectations of buying interest lower. SMP prices increased as well but the gap of $ 150,- in December between EU/NZ and US SMP seems unsustainable.

The fat have also performed well. The deducted volumes might have been the biggest driver here. NZ prices are now back in line with EU prices (roughly) and so the EU might start to become a bit more competitive again for certain export destinations. This might put the rally of the Fat Group also to a temporary halt.

The EU Market

Looking at the EU, we see also a bit more bullishness. Cheese (apart from cheddar, Maasdam and Emmentaler) are performing well and are hard to find. Spot milk prices continue to trade above the price of commodities, putting commodity production at a low probability.

Cream prices also continue to hold up quite well. Prices of cream have started to trade above € 6100,- DAP west EU yesterday and the demand and supply balance remains tight. Fresh butter production is probably at its lowest point at the moment. SMC prices also trade well above the price of SMP cost price, so we would expect the low SMP production to remain at low levels.

But on the demand side, the EU remains very silent. Most deals we are discussing are about export demand, and almost none of the buyers we see are looking for EU destinations. The demand side remains the biggest bearish argument in the market. But at the same time, it is maybe also the only bearish argument that is remaining.

So the big question is, are we looking at a bullish market? Or is this a final squeeze that sellers can push out before the market turns bearish again? Please share with us your thoughts as we are not sure how to read this market at the moment.