Less downside, more balance.

Last week felt again like a quiet trading week, although we did broker our regular volumes. Most volumes traded on Wednesday and Thursday and seemed to be a reaction to a few producers lowering their offers. But once these volumes disappeared the activity disappeared again as well. It shows that without producers selling, traders aren't eager on selling either. But does this mean producers are in control? If so, we could see a much more bullish market in the near future. 

Without the activity from producers we would not trade lower we are sure. We have spoken with most EU dairy traders, and none of them seems willing to take a risk selling to end users on lower levels without the backing of a producer. Fear of a warm summer, a short squeeze or negative milk intake due to lower milk prices is keeping them all from putting risk in their books by selling short. So with producers in the driver's seat, we will see higher prices right?

But that all depends on how strong the demand is. Because we don't see traders taking the risk in selling short but taking a long position also doesn't seem a scenario they would like to play. Because they might be cautious, but so far supply is still strong, and it's the demand side that is looking to be the problem at the moment. Last week when producers came to the market to "test the waters" as one producer put it, they didn't find a lot of buying interest, especially not for April or Q2. The low demand seemed to be the reason for the lower trades of last week.

Short term pressure, but slightly less bearish:

We are bullish on the dairy market prices on the long term, but for closeby we expect prices to correct a bit further down this week. With the demand for liquids for easter gone and the weather in the north, west and east EU not boosting demand for fresh products we expect to see lower trades for cream, smc and raw milk again. We also expect that producers will have to move some additional volumes again, but they will have to come down a bit more to find buyers.

We also see a bit more old stock available. We still see products offered from 2022 Q1 and Q2 for SMP and butter. The market for fresh cheeses seems a bit less. For cheese, we also still see buying interest from the south of Europe, and we don't believe we will see prices for cheese fall much lower as we are seeing today.

For powder we are a lot less bullish, markets worldwide are overstocked, demand for powders is strongly linked against the price of oil and demand for close by just isn't there, while we see plenty of offers. If South East Asia doesn't pick up demand soon, we expect to lose another 10-15% on the price within the next month. Even is supply suffers and demand increases a bit, stocks are going to be a buffer for a little while.

We do expect butte prices to correct down a bit in the next weeks, but we do believe we will find a floor between € 4000,- and € 4500,-. Below € 4000,- the incentive for cash and carry is simply to great and demand from export destinations will pick up. But at levels between € 4500 and € 5000, we don't see buyers engaging. With cream prices in the recent weeks between € 5100 and € 5500 in the recent weeks we see the cost price of commodity butter is around € 4500,-. We expect producers to release their butter produced between April and June at this price as stocking + selling into Q3 and Q4 simply is to expensive for most. Between € 4300-€4500 they will find traders ready to to this for them.

Q3 Stable, Q4 Bullish

Most of our partners (we can almost say all) expect that prices in Q3 will start to rise again, and it's exactly because of this that we believe the turn will come in Q4 (or the end of Q3). We see most buyers lock in products for July/August already as most don't want to be called during their summer holiday and prices are going up.

One of the other arguments from most is that they expect the milk intake to decline starting Q3 as prices will be below cost-price by then. We think most farmers will have to work through their stock first before quitting/slowing down production (killing cows). Most will last until August / September before taking any decision.

And last but not least, stocks are going to keep traders from buying additional volumes, the same as we expect for end users. For fresh cheese like Gouda, Edam and Mozzarella this might not be the case, but if butter and SMP will valorize lower than cheese, cheese price increases might also follow a bit slower.

But Q4 we might see a rapid decrease in milk intake. If demand will remain strong (big if) we can a 2021 price rally all over again. Although the Q4 rally in 2021 was caused by a lot of market participants being caught by surprise. Looking at the very balanced positions of all our partners, we don't expect to find anyone caught by surprise this time...

What to look out for this week?

We will take a close look at the prices for liquids, if they manage to keep strong again for another week, the market might be a bit firmer than we think. We also watch the activity of the producers closely, we expect that some will have to start offering products for April as we haven't seen some of the regular sellers for a few weeks. Our personal attention goes to the banking crisis as well believe that what will happen here will have a huge impact on consumer demand, financing cost for our partners and the usd/euro rate.