Market outlook

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Market Outlook | 6 November 2020

More countries in Europe are heading towards a new lockdown in order to stop the spread of the virus. In addition to this, there is no clear direction on the outcome of the Brexit negotiations and the elections in the US. This all leads to uncertainty in the market and results in short-term positions with end users and producers. In general, this means that there is still a lot of demand that needs to be covered as of Q1 onwards, but this is combined with relatively empty order books on the production side. Furthermore, the 2021 outlook regarding milk production is good, with stable milk prices and an expected growth of between 1.5 and 2% in 2021 in the main exporting countries.

Skimmed Milk Powder

After a firm start to the month, some cheaper offers from outside the US came back on to the market and the derivates markets were the first to react to this. The EEX Q1 traded at levels around EUR 2270 during the first half of October, although this changed when the cheaper offers from outside the US became available and prices started to drop to levels around EUR 2150 (also Q1) as a result of this. The physical market in Europe remained relatively stable, with prices around EUR 2200/mt FCA for Q1. Looking at the world market, buying interest remained stable at levels between USD 2550–USD 2650/ mt CFR.

Bdairy’s outlook is stable, as there is a good balance between supply and demand. In the short term there is still demand that needs to be covered and we believe that this will give enough support to
the market. From the supply side there is no big pressure to sell SMP and stock levels are low. Global imports have been strong this year and the expectation is that they will remain strong – please see the picture below.

Butter

After several months of firm prices for cream in Europe, they are now clearly coming down. This week cream traded at levels around EUR 3900–4000/mt delivered, which is 10–15% lower compared to the beginning of October. In general, demand for industrial butter is weak. Although there is still some demand that needs to be covered in Q1, industrial end users in Europe prefer to wait as they expect lower prices. End users feel support from the market, since the current butter offers for Q1 (between EUR 3250–3300/mt FCA) are lower than the butter offers for November/December (between EUR 3300–3350/mt FCA). Demand from retail is still strong, and last week the retail price in Germany was concluded for 2 months (November and December) at a relatively high price of EUR 3840/mt.

From the supply side the availability of fresh butter for November/December is still limited due to
the relatively high cream prices. However, if cream prices drop further, more industrial butter will be produced and more fresh butter will become available. At the moment the availability of frozen butter is better.

Our outlook for butter is slightly bearish. Demand from food services will be slow due to the new lockdowns, but at the same time the availability of frozen butter is good. Until now, cream prices have kept the butter market relatively stable but, since cream prices are dropping, we expect more butter to be produced. However, the downward potential is limited as the gap between European butter and the world market is approx. USD 100–250/mt, demand from retail is still strong and most industrial end users are only covered hand to mouth.

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