Weekly Update Week 45: Returning demand pushes prices back up!

Last week the dairy market showed itself from its most volatile side. All products showed significant price changes, not only to the downside. We saw more buying interest from some markets and buyers from Algeria are in the market, pushing demand (and prices) a bit up again. But at the same time, the negative GDT result and the fast-growing milk production pushed the market down during the mid of the week. 

A week like last week does shine a bit more light on how the market dynamics are set. Sellers react strongly to the news that could potentially be negative for prices. We see producers react much quicker to new prices and market changes. If we compare their behaviour with 4-6 months ago we see that they are faced with a completely different situation. Before the summer they could not care less if prices went down, as most were sold out and not under pressure to sell anything! But last week we saw almost all co-ops react to the negative GDT outcome as they are also faced with higher stocks, fewer unsold volumes and more delayed contracts. In July and August, the GDT also corrected down 5% two times in a row, but without any reaction from the producer's side.

Buyers did not really react to lower prices over the last weeks. We have written about this before in the past week, we think some buyers aren't even happy with lower prices as it affects the value of their stock levels. And when prices at the end of last week went up a slight bit, we did not hear or see any strong reactions from their side. Last year we had end users chasing the offer, and now we have producers chasing the bid.

But as soon as some demand came back to the market at the end of last week, we did see the price correction come to a quick halt! Sellers would like to see if this demand can bring back the prices up again, and those buyers who were under negotiation saw the offers they had getting pulled from the market. On powders the demand and tenders from Algeria were a reason for EEX prices to trade back above € 3000,- and CME prices also jumped back up. And as the first week of the month is always a bit stronger for butter demand, we also saw butter futures trade higher, affecting also the physical market.

We do see some buyers and traders accepting slightly higher prices compared to the days before. Some seem to fear a price rally, while others think it is just a healthy correction and stabilization. We think the market needs a week or two to settle down, we can't trade € 200,- per mt lower every week. But we did not see any fundamental changes yet. Milk is still growing, we still see stock, we still see more sellers than buyers (for 2022) and the outlook for demand is still a bit negative, and the forecast for milk production is still positive. The supply and demand balance is still in favour of supply it seems. We do think that the fast correction for Q1 and Q2 might come to a slowdown as natural buyers for Q1 and Q2 (big industrial buyers) will have to start covering their needs in the weeks to come. Who knows we might see the entire dairy market come back in contango as there is more selling pressure in Q4 and more buying pressure in Q1.