Liquids Up, Commodities Down!

Yesterday we saw a market that we don't see often. The market for liquids moved clearly up but at the same time the market for commodities kept easing, hitting new low levels for butter and SMP. The cheese is stable, but for Q4 we clearly see more sellers and fewer buyers. What is causing liquids to rally and keep commodities at lower prices at the same time?

The west of the EU is clearly hitting the lowest point in milk collection of the year, creating the lowest availability for raw milk, cream and SMC on the market of the year. Demand is still okay, especially from Eastern Europe we hear that the buying appetite is strong. And it is not unusual for prices for liquids to rally a bit during these weeks. Schools are starting again, creating additional demand for liquid milk. Prices from cream went up between € 5500 and € 5700 and smc prices went up toward € 2100, trading almost above the price of smp. Prices for raw milk are now almost flat against contract milk prices between € 0,40 and € 0,42. in NL//DE and up to € 0,50 even in France.

At the cost of these liquids prices for butter should go up toward € 4800, SMP prices up to € 2500-€2600 and cheese prices up to € 3800,-. But what we saw today in the commodity market was a complete opposite move. Butter prices moved down (for frozen products) and we brokered volumes between € 4100 for Portuguese butter and € 4300 for Polish butter. For SMP we got new offers as low as € 2150,- but our buyers claim to be buying fresh material from producers even below these prices. Cheese prices are trading fairly stable, but we still see more offers for cheese between € 3400 and € 3450 and we can't get any buying interest.

The opposite moves are not common in the dairy market but if we see it, it is usually around this time of year. Buyers remind us of this fact in every conversation. But can the "wish be the father of the thought?". The low commodity prices are a clear sign that buyers don't need any product for closeby. Most are even covered for their entire Q4 needs. But usually, Q4 is the most active quarter with the biggest increase in spot demand. Sellers keep reminding us in almost every conversation that we should expect spot buyers who will need to pay higher prices as long as liquids are as tight as they are today. But also with our sellers, we think... is "the wish the father of the thought".?

So, this is our elaborate way of telling our partners that there are arguments for higher commodity prices and for lower prices and whatever happens, we can say we predicted the right move. We never hide our market view, but at the moment we find it harder and harder to be convinced of any direction. Our bearish market view is mostly formed by our bearish outlook on the export market and the economy as a whole, but looking only at the EU dairy market fundamentals we think the market is fairly balanced and probably closer to the bottom, than to the top! But a real market reversal might take us into Q1 2024 before we see some real upward motion.