Market Update - March 10, 2023

Welcome to the OpenDairy market update.

This week, we notice markets are still looking for a clear direction. After a strong week of purchasing by Algerian buyers, the GDT provided a clear reality check to the market. Demand is there, but global buyers don't seem to be in a hurry. And their patience is rewarded this week, as we have seen prices correct downwards.

In the meantime, farmgate prices in Europe have made another round of correction. Also in the US, we hear spot milk and milk commodities trading at a discount. But these prices didn't reach the consumer yet. Consumer prices are typically locked forward for a longer period. And in export markets, buyers tend to sell their stocks based on their last purchase before replenishing and passing on the discount to their end buyers.

Demand will come back to the market, but the game of price elasticity is not working yet. It will take at least a few more months before consumers will feel the relief of lower prices. And that will give industrial buyers the confidence to cover their requirements for a longer period.

Our expectation is a strong flush in the Northern hemisphere, a statement many will agree with. As explained in our last update, the expectations for H2 are more firm, and these expectations are reflected in the forward curves of the futures markets.

However, no one is able to predict sentiment. At this moment, the sentiment is bearish due to the huge wave of milk coming at us. But the dynamics of consumer prices being corrected to the raw material prices will awake many buyers from their inertia. Consumer behaviour will become more predictable, giving buyers more confidence to cover their requirements. And this might very well coincide with a strong decline in output after the northern hemisphere flushes.