Futures Indicate Weakness

Yesterday the market turned a bit softer. We don't see any major moves on the commodities yet, but on futures there seems to be some signals that a weaker market is expected. Especially the butter market tumbled down quite a bit yesterday, leading the way. On the physical side, sellers follow with lower offers, but finding bids that match their expectations seemed impossible.

The main driver behind the lower market seems to be the expected growth in available spot milk volumes. So far we hear reports a bit more milk is popping up here and there, but nothing very significant that should explain the stronger moves on futures. The current sharper offers seem to come from traders speculating on a lower market. And although we agree with the direction, it remains to be seen how fast producers will follow.

Looking at the market for SMP the "heat" that came from the ONIL tender seems to be fading again already. One of our partners indicated that it's expected that the need for WMP would be greater than SMP. We hear some EU factories selling their SMP at prices between € 2300 and € 2400 while some of the bigger producers still aim for prices between € 2600 and € 2700. But judging the world market prices and expected availability in the market for liquids, we think the producers selling at the low end of our indication range are rightfully selling forward to avoid stock-building pressure in the seasonal milk run-up.

The cheese market remains very slow. Speaking to a few buyers today it seems a lot of end users carry more stock from 2023 into the first months of the year than expected. Therefore we expect a bit less spot buying and some easing of prices as well. Although cheese has been very resilient over the last months, prices should correct down following the trend of the other commodities.

Overall it feels like the market is softening a bit, and not really coming down hard. Butter futures corrected over € 150,- (€ 250 compared to a week ago) per mt for Q2, and that feels a bit heavy. Although butter prices can be very volatile and can move down faster than other commodity prices. Most partners keep a keen eye on the market for cream and raw milk to give a indication on how much room there is for prices to go down. The first indications point to a modest correction.