Market Update June 5, 2023

Hi everyone,

Welcome to the OpenDairy market update.

Last week we observed a balanced market in which buyers, sellers and processors were happy.

The main concern in the current dairy market remains the demand development in the second half of the year. Looking back, we wonder how good demand has actually been.

First of all, Chinese demand has been lagging, but we are getting used to a new normal when it comes to Chinese demand. The local milk production is ramping up and large farms are increasing their cow numbers at the expense of the smaller businesses.

Looking at global trade in milk equivalent, all major importing regions are still lagging. It seems like the high prices of 2022 have reached the consumers and resulted in a drop in demand.With demand being so poor, the market seems to be driven by supply developments.

Farmgate prices in Europe have decreased by around 25 cents per kg in the last 6 months. The Class 3 milk in the US is also on a clear downward trend. But with the milk flush behind us, it looks like we’ve seen the majority of the corrections. Farm margins are under pressure, but not alarming.

We have explained the concept of spread trades in our earlier market updates. In this concept one buys a commodity for spot delivery, stores it and sells futures for the period one expects to resell the product again. This so called “carry trade” has been executed frequently, especially during the early milk flush in Europe. We recall drying towers being totally full in early February already, but never really felt the pressure of this production. And as figures show, end buyers didn’t absorb those quantities either.

We could be in for a few dynamic months, when the futures start expiring in Q3 and Q4!

Thank you for your attention and we welcome your questions and remarks!

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