Weekly Update: Getting closer to the bottom.

We kept thinking that there should be quiet weeks ahead of us, but the previous weeks kept proving us wrong. The expected summer of silence is partly becoming a reality (as business done for Q3 is low). But we keep finding buyers willing to lock in volumes for Q4 and Q1. It tells us two things: It tells us that demand for Q3 is mainly covered and pressure from freshly produced unsold stocks will push on the market prices more heavily. But buyers keep buying for Q4 and especially Q1, proving that a lot of end users don't think (or want to speculate) about lower prices after the summer. 

And it is not strange that buyers would rather keep locking in stocks at the prices we see trading in the previous weeks. Q4 prices traded roughly at this year's average prices and the downward potential seems limited. But in Europe, we see milk volumes aren't increasing (or even starting to shrink a bit) and the push-back from environmental lobbies is limiting EU milk production growth. It is this fear that has kept the market "high" in the previous months. and we think this fear will prove to be a firm floor under the market.

The negative side effect of this forward covering is that spot demand will remain (as we are seeing these previous weeks) low. But now we are entering a period where the EU normally produces fewer commodities than it consumes we will see that freshly produced stock won't push as hard on the market as it does during the milk peak. We, therefore, foresee a period where stable prices with a slight downward trend will set the tone. Big events from outside of the EU or outside of Dairy might cause a price shock (up or down) but otherwise, we expect a continuation of the trend from the previous week. Only when we enter the period of higher production and lower consumption (end this year, beginning next) we might see another round of big decline in prices.

We see a few other trends that make us think we might be getting closer to the bottom. Retail prices are easing a bit faster and dairy prices are in some areas taking the lead. Cheese, milk and butter have come down in price, this might boost consumption a bit. In addition, we hear the rumours that ONIL will be announcing a tender soon, normally bringing some upward potential back into the market for powders.

Don't understand us wrong, we still think the current stock situation on SMP and butter doesn't provide much upward potential. And if we are well informed it doesn't seem demand for 2023 will be bigger than the supply. But we think there are enough signals to name that could indicate we are closer to the floor than the market sometimes let us believe.