Market Update - April 7, 2023

Hi everyone,

Welcome to the OpenDairy market update. 

The market continues in line with our previous update. The dairy spectrum is weakening further, with only cheese able to hold some ground.

Most players expected the last GDT to be weak again, and so it happened. Chinese demand picked up a little, but it was just too little to make up for the extremely weak demand from the other importing regions. We have noticed this sluggish sentiment in the export markets for the last few weeks. And it doesn’t seem to be driven by good coverage or high stocks at destination, but simply by a decline in consumer demand. 

The milk output in Europe shows less growth than some might expect based on the high farmgate prices of the last month. Every country tells a different story with Netherlands, Germany and Belgium showing large increases, but France, Spain and Ireland are lagging. 

The market seems to expect a stronger H2 in terms of milk powder and butter prices, reflected in the forward premiums on futures markets. We have a few remarks on those hypotheses. 

First of all, the cost of carry has significantly increased due to higher storage prices and finance costs. That naturally leads to a steeper forward curve. 

Secondly, we do agree that milk production will need to contract after the northern hemisphere flush, as farmgate prices will drop below break-even levels. Our worries, however, are at the demand side. The lack of buying interest shown on GDT is quite unusual and pushed powder markets to new depths in both the US and the EU. Milk will start to flow, warehouses will start to fill, and we will have some stocks to work through before the market could have a chance to turn bullish again. Without significant acceleration of buying interest, we are afraid the low prices could be here to stay for quite a bit longer than many expect…