(the last?)Shortsqueeze

Another interesting day in dairy—and that does say something. Our discussions with partners seem to get more entertaining by the minute. Prices for fat-containing products are trending higher, but the rally feels driven more by emotion than by cold, hard fundamentals. At least, that's what roughly 75% of our partners are telling us. A smaller group insists the market is right where it should be, or perhaps even on the cheap side. And for proteins? We’re catching sight of lower trades and offers on skimmed, but the bears aren’t exactly hibernating while a few bulls are calling for a much livelier year in SMP than current futures suggest.

The liquid market remained quite volatile yesterday. Cream prices, in particular, see-sawed once again, ranging from as low as €8250 to as high as €8600. The market appears to be in search of some kind of equilibrium. It looks like a short squeeze in butter drove more demand to butter manufacturers than anticipated. As soon as futures eased toward the end of the day, cream prices relaxed as well. We wouldn’t be shocked if a few spot loads at the lower end of the range pop up tomorrow. Meanwhile, SMC prices bounced between €2050 and €2200, and raw milk held at around 50 cents or just below.

Butter: Short Squeeze?

Butter prices rallied in the morning to around €7400 for NL/DE/BE butter. But then the average EEX settlement price came in nearly €100 lower compared to the previous week, and that bullish exuberance quickly faded. A few buyers were apparently taken aback by a sudden lull in activity, leading to a short squeeze. But, as we all know, higher prices tend to bring out more sellers. Producers and traders seem perfectly willing to offer product for the upcoming months at roughly €7400. And thus, this short squeeze lived up to its name—short.

Should we expect prices to drop now? Probably too soon. We’d need some extra stock on the market to really spook the sellers. After coming off one of the tightest stretches in recent history, that might take a few weeks—or even months. However, most buyers have figured out that if they’re willing to open their wallets, supply isn’t quite the headache it was back in November. With seasonal milk growth and strong milk prices, it’s unlikely we’ll see that same butter shortage before at least the second half of this year.

We expect to have sellers for the following:

• 4 trucks of NL/DE/BE fresh/frozen for Jan/Feb at €7400
• 4 trucks of Irish butter Jan/Feb fresh/frozen FCA IE at €7350
• 2 trucks of Arla Sweden/DK for Jan at €7400
• 1 truck of German 10kg blocks, fresh at €7450 FCA DE

Our buyers have pulled back a bit at these levels:

• 2 trucks NL/DE/BE fresh/frozen for Jan at €7250
• 2 trucks Irish butter frozen FCA NL at €7200

Cheese: Trailing Butter

The cheese market has also inched upward—though mostly following butter’s lead. In conversations with our partners, we’re not seeing a stampede of buyers for near-term shipments. Those looking ahead to Q2 aim to buy closer to Monday’s offering levels. The shortage of fresh offers might be related to rising butter prices, but if butter slides back to previous levels, we wouldn’t be stunned to see cheese offers dip in tandem.

For now, we’re opening with the following bids:

• 6 trucks NL/DE Gouda 48% for Q2 at €4200
• 6 trucks NL/DE/BE/DK Mozzarella for Q2 at €4075

Potential offers came in at:

• 6 trucks NL/DE Gouda 48% for Q2 at €4250
• 6 trucks NL/DE/BE/DK Mozzarella for Q2 at €4150

Powders: A Floor or a Trampoline?

So is the SMP market hovering near a floor at around €2400, or ready to bounce like a trampoline? If you ask us, it feels like a floor—a level we’ve been tapping (and inching up from) for many months now. But others see far more upside. The reduced milk supply in the U.S. (particularly California) is prompting some folks to rethink the range-bound forecasts we’ve been preaching for a while. The EU doesn’t have mountains of powder in storage, we’re the cheapest on the global market, and given current SMC prices, it’s plausible that any added demand could push SMP to higher levels.

We remain somewhat skeptical of a big SMP bull run. But after 24 months of being tossed every market theory under the sun, this one at least has some solid fundamentals behind it—and fewer “ifs” and “buts.”

We open the day with:

• 100mt of UK SMP Nonstandardized at €2500 FCA NL
• 96mt of UK/NI FCMP fresh at €4200 FCA NL
• 50mt of Uelzena SMP fresh for January
• 100mt of F+S SMP fresh for January

We have a buyer for:

• 100mt of FCMP from the UK for Feb/March at €4100