Monthly Dairy Digest: February

One down, eleven more to go! Is it because we are getting older? Or is it because January was such an insane month? It really feels as if January has gone by quicker than any other month we have seen in dairy. The volatility has been enormous, but the traded volumes also seem to exceed any previous month and our expectations, and it is not only us seeing this. Speaking to traders almost all claim to have seen their biggest sales month ever. We try to figure out what this means. 

Looking back on the month of January we can see the following. Butter dropped from € 5150 on the second of January to € 3750 in Poland early last week, only to bounce back up to € 4300 today for NL/DE/BE butter. Cheese prices came down from € 3700 for Gouda to € 2750,- and have corrected slightly up now to € 2800,-. SMP prices have been dropping less extremely, but did fall from € 2700 to € 2365 today (and some products even lower).

We at Get Fair Dairy have seen that the market has been looking to offload a lot of products and they traded over 7000mt in the first month of the year with yesterday being the biggest day with over 1500mt of product. The majority of the product traded over butter, and this seems to have been the most "liquid" market for the month of January. We fact that most traders have had an extremely busy month tells us that at these lower price levels finding buyers have been relatively easy for most traders. Most end users who have 12-18 month forward contracts with their buyers have been able to lock in good margins. Does the big question remain that if a lot of purchases have been done in the first month of the year, how active can the market remain in the next weeks?

Looking back at the conditions in the market for milk production in January in Europe the conditions have been extremely favourable. And looking at the milk intake number shown so far it seems most countries are producing more milk compared to last year. The Netherlands, Germany and Belgium seem to be ahead of the producing countries with a YoY increase between 4-6%, France keeps lagging a bit with a -1% average. Overall Europe is expected to milk more in January and continue this trend.

Looking forward to February we think these are the most important factors to keep an eye on:

GDT / China demand

Next week we will have again the next GDT. The entire world market seems to keep a close eye on the demand from China for the GDT. Market signals about China are very mixed. We do hear they are buying a bit more volumes, so export to China might improve a bit over the next months. But the competition is fierce and we hear the Chinese don't have to buy and only buy when they get more attractive prices. If China steps in aggressively at the next GDT we might see the market show a correction.

Gulfood

From the 20th to the 24th of August Dubai is hosting the Gulfood and we expect the whole world to come here again. It will be good to see Chinese visitors back, although not everyone is convinced a lot of them will visit. We said it before, these trade events can be functioning as a boiler room. With a lot of key counterparts in the same area coming to the same conclusion seeing the same sentiment can give the market another boost. Depending on the sentiment the market can react strongly, moreover as we see both the supply as the demand partners are more nervous on these levels.

Start of the Irish Season

Not everyone will agree with this, but we think a part of the sentiment in the market will be set by how strong the Irish season will start. Some seem to expect a strong start, but every one is that convinced. We think the Irish producers haven't sold a lot forward and a strong start of the season in combination with a bearish market sentiment might lead to extra pressure and lower prices. But a slow start in a market that is already showing bullish signals might boost sales more en pressure buyers to accept higher prices. We think the Irish are an important factor this month.

Stocks Stocks Stocks

But the most important to watch is the stock position. It has been old cheese stock in January that has been pushing the cheese market down, it seems the powder stocks that are being released right now are old and will determine the price pressure on the SMP market. Warehouses in eastern Europe are reported to be full of SMP aged between 9 and 12 months old. The financial pressure is putting some dairies under pressure. The same can be seen in Ireland. More product is showing and we hear that some buyers are already receiving offers at € 2000 DAP for older product.

In Conclusion

We need to watch how both demand and supply development, and we know where to look. Looking at the last 7 days we see that on butter a sudden demand spike can move markets up 5-7%. So China or active buyers at the Gulfood might change the sentiment. But the supply side is equally important to watch. If the current trend continues we think stock pressure and financial positions of producers will lead to bigger and more aggressive selloffs.