GDT to determine the bearish sentiment

Yesterday was, as we have seen in the previous weeks, a typical start to the week. Most partners have their weekly meetings taking a view at their needs to sell/buy and usually come back at the end of the day to see where opportunities lie. With two small trades the week sets off slowly but follows the trendline of the past weeks, slowly down. 

And with another GDT this afternoon we expect most partners to sit on their hands to wait for the results to give some direction. The overall expectation is that the auction will publish a negative result with futures for all commodities in the red apart from AMF. We would expect a correction as well. Looking at the prices in the US and Europe for SMP and Butter and following last week's GDT Pulse results for WMP we would be surprised to see big plusses. Only AMF should correct upwards as long as it is trading at a discount v.s. butter.

It seems a lot will depend on the activity from China. If their activity will remain below normal we expect a negative GDT with a result of around minus 4-5%, but somehow the market could get a surprise as the first contracts for 2024 might show some recovery. But at best we see a result around minus 2%.

With the worldwide dairy market in a bearish mood, we think the GDT results might determine how bearish we will remain. If we manage to stay relatively flat v.s. the last event it might give the market some confidence that we have found a bottom. Any result worse than minus 5% might push the market into a higher bearish gear.

Slow down of economic activity

That demand is down doesn't seem to be a problem for the dairy market alone. The PMI index in the Netherlands came out yesterday, posting again a negative outlook from the Dutch industrial sector, this is in line with the European average. Worldwide industrial growth is slowing down due to high inflation and increased interest rates. Production companies are lowering their stock levels and also lowering their sales prices to boost demand. We also see companies cutting staff to reduce costs. The forecast from the Europen industries remains bearish for the following months.

It seems production companies using dairy commodities as an ingredient follow the same logic as the production companies in general, they are slowing down purchases and trying to reduce stock as these stocks way heavy on the company cost and make them less agile to move through the fast-changing markets. If the purchase managers at the companies that buy dairy commodities have the same outlook as their peers, we have to assume buying interest will remain low for the remainder of this year.