Bullish Sentiment With Bearish Doubts

Yesterday we spent our time in Hall 10 of the Anuga, and with 25.000 steps we have seen every corner twice. Speaking to everyone we can say without a doubt most partners have a more bullish view on the market compared to Friday last week. Especially the cheese market in Gouda and Edam feels more bullish, and the market for powders seems tight in fresh supply and good in demand. And although we are in an undeniably bullish sentiment we see and hear doubts about the sustainability of these price rallies. There is however a remarkable difference in sentiment among the different partners:

Producers: Bullish without much doubt

Every producer we spoke to yesterday has the same market view, and that is UP. Milk is tight and demand for fresh products is strong (cream/smc/raw milk). In addition, most carry less stock than usual and they see good demand for products. And although not everyone told us who was buying, we did get the impression that they have been selling most volumes to the trade in recent weeks, and not so much to end users. This seems more the case for butter and powders, on cheese it seems the industries are still buying as well. Especially the demand from Eastern Europe remains remarkably strong producers say. The weakest signals from the producers are around butter. Most seem to agree the market has overheated a bit and now needs to cool off. The amount of cooling depends on how cream prices will hold up.

It ain't that strange that producers look at the market with more bullish glasses. As said before, they are faced with less milk and farmers stress about milk prices more than anyone else in the market. In our view their market bias is based on supply concerns, more than they base that on demand concerns. We would say that the producers we met yesterday are.

Bullish: Cheese (Gouda, Edam, Mozzarella) and Powders (whey and smp)
Stable: Butter (sweet) and Cheese (Cheddar, Emmental) Powders (FCMP)
Bearish: Butter (lactic)

EU End Users: Stable with some bearish thoughts

Speaking to end users we see a more divided market. Those who are in the cheese industry are a bit nervous. We feel that there is still a lot of buying to be done by most and not everyone seems comfortable waiting for the offers for producers. This mainly is the case looking at Gouda and Edam. We see strong demand at prices below € 3650 but we expect that market to trade towards € 3750 in the next weeks. Processors of cheese seem a bit more relaxed on the other hand. They have been covering their needs well into Q1 and they seem relaxed.

Looking at the end users who focus on butter and SMP we see a more bearish sentiment. Their needs are covered and most seem to keep pushing the story that they carry a lot of stock and that their sales are down. Speaking to two butter buyers they are covered well into Q1 next year and they need to roll more stock from 2023 into 2024 if sales remain on the current level.

Speaking to the end users we once again see that they aren't focussing that much on the milk supply. The supply side of the market hasn't been their concern over the last 12 months, but the demand side has been. As they struggle to forward sell their products they have a more bearish bias toward the market as they are more concerned about demand and not so much about supply. We would see the end users' market view as follows:

Bullish: Cheese (Gouda)
Stable: Butter (sweet)  Cheese (Edam, Mozzarella) Powders (SMP, Whey FCMP)
Bearish: Butter (lactic) and Cheese (Cheddar, Emmental)

Traders: Bullish but Bearish

If you walk around Hall 10, it is hard not to bump into a trader every 5 meters, so we spoke a lot to the traders as well. As said in previous reports, traders are the most flexible in looking at the market. We speak to most traders on a daily basis and we have seen them struggle with the market direction for a while now. They see the same concerns the producers see, and they hear about the lower offtake of their customers. Traders are trying to find the answer to which concerns are more important to take into consideration. Debating this issue we do see one theory that fits best.

Due to a lack of demand and forward covering most seem to think for some EU commodities the short-term pricing should be revised lower. But all agree that in the medium to long term, the market direction will be up. Less milk will have a heavier impact on the market than the demand side. Because demand can be attracted relatively easily with lower pricing, but getting back milk supply always takes a lot more time.

Speaking to the traders yesterday we would say these are:

Bullish: Cheese (Gouda and Edam) Butter (Sweet) and Powders (SMP and Whey)
Stable: Cheese (Mozzarella) Powders (FCMP)
Bearish: Butter (lactic) and Cheese (Cheddar)

So a day in the dairy hall learned us that the market will always have different market views, but the overall sentiment about the dairy industry is positive and prices are expected to be on the rise again in 2024. The big question remains what short-term pricing will do. We feel the market for butter has been overheating a bit and for butter, we see the biggest chance for prices to trade lower again in the next weeks. But for most powders and cheese our outlook would be more bullish as well.

Tomorrow we hope to present some offers and bids, but. today we wish everyone positive energy and wisdom in analysing the market.