Market Update - February 17, 2023

February 17, 2023

Welcome to our weekly market update, in which we will tell you about the developments in dairy the past week and our expectations for coming week.

Hi Everyone,

Welcome to the OpenDairy market update.

The dairy market has provided us with many questions the past few weeks. We noticed many players were surprised by the violent moves of the dairy prices. In this market update, we will try to look past the volatile, short term market movements and look ahead further into 2023.

It seems many players in the market did not expect the sudden, and aggressive price rally on both the protein and butter side. This week, prices corrected significantly, but seem to have found some support as well.

In our view, the volatility we are currently experiencing is caused by contrasting market views for the short and longer term. We can expect a strong milk flush in the Northern hemisphere, driven by farm economics and lackluster international demand. This causes a weak, supply driven fundament for the next 3 to 4 months. The pace of farmgate price corrections will not be fast enough to prevent farmers from producing at their absolute maximum.

However, if we look past the upcoming northern hemisphere flush, we see a different picture. The recent flooding in New Zealand will affect the production in the shoulder of the season.

Milk output in Europe will correct strongly after farmgate prices caught up to the commodity markets. And buyers are waiting for the right moment to cover long. In China, an early indicator of a recovering market are the whey products imports used in piglet feed.

China does not have a local source for whey products and therefore has no stocks to work through. When whey imports pick up, it means consumption is picking up, and milk powders will follow in due time.

The combination of contracting supply in H2 and returning demand could bring back the bulls to the market. Timing is everything...

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