Dublin Drinks, Debates and Dancing didn't show Direction

Last week a big portion of the people we work with in the dairy market packed their bags, notebooks, glasses, dancing shoes and stamina to visit the StoneX conference in Dublin. Not only looking for fun and friendship, but mostly for confirmation of their market vision – or for a direction, given the lack of any. And while most found plenty of fun and friendship, outspoken market confirmation or vision was a whole lot harder to find. This market is clearly in more sideways waters on most commodities and, judging by the Dublin sentiment, very likely to stay drifting. Uncertainty seems the only certainty we took home with us.

Writing these updates usually comes naturally to us, but putting a sentiment on the current market feels hard. Prices for butter, powders and cheese feel like they have been trading sideways, yet zoom out and the trends continue, just at a slow pace. And saying the market lacks conviction isn't entirely true either.

SMP: Impulse Needed

Speaking to the partners mainly involved in powders, the sentiment clearly feels bullish. Some build in a small pullback over the coming weeks, but the overall direction points more towards €4,000 for SMP than back below €3,000. The most heard arguments remain the same: poorly covered end users, a slowdown in production, quick stock depletion and a strong shift in consumer behaviour pushing protein demand higher. Yet the bullish talk and the bullish presentations still need to materialise into physical trading. Most sellers sit ready to test the market for new highs. It's the absence of buyers willing to commit larger volumes forward at higher prices that keeps the market from turning even more bullish. The fear of buying too expensive – or missing the top as a seller – is keeping a lid on this market. For now.

Butter: Sideways over the bottom

The situation in butter is a bit different. The presentations made clear that worldwide production is up, and with worldwide imports going parabolic without any clear signal that demand for butter did the same, it feels safe to say not only the EU but other parts of the world are stockpiling butter. It fits our "fear of high prices" theory on why people keep building stocks. And this fear driven market isnt going to push many sellers to the market near its likely bottom. The market did trade down a bit, with spot at €3,825 and Q4 at €4,000. But speak to anyone at the event and nobody is convinced this market can trade much lower. Most assume milk collection will turn weak within the next months (although the figures don't really support that yet), and almost everyone we spoke to said that below €4,000 they would rather build more stocks. Producers, traders and buyers alike. The fear of missing the best buying opportunity – or selling too much too low – is keeping a floor under this market. For now.

Cheese:  The Mozza-Gouda divergent

And then our renewed view on cheese. Joey did his best to connect with as many cheese stakeholders at the event as possible. The overall consensus: mozzarella feels/felt overpriced and gouda a bit cheap. And with both commodities moving slightly, it seems the cheese market has made its move again. Producers all face the same issue on export – competition from the US and NZ is keeping more product within the EU – and with EU cheese production up, nobody is really bullish, especially on cheddar. Zooming out, you can argue this cheese market has already had its rally. We would argue the market is lacking upside for now. But only for now. If milk volumes do start to decrease, cheese production will dry up fast, because with a bullish SMP market and a well-supported butter market, cheese can only drop so far before it's back for another rally. We would advise cheese sellers to follow their butter colleagues' example. Don't sell close to the floor, but wait for the rally. In cheese, we would expect that strategy to materialise faster than in the butter market. 

Back from Dublin

So what did we actually take home from Dublin? A year ago the room had an opinion – loud, shared and mostly right. This year the sentiment was a lot less outspoken, and that's exactly what makes us a little nervous. Because a quiet consensus is still a consensus, and a consensus is how volatile markets get built. A lot of bullish SMP traders make for a very heavy sales side the moment buyers do step in and prices hit the level everyone was waiting for. And a lot of butter stockpilers below €4,000 sounds comfortable now, but stockpiles don't stay fresh – and when everyone needs to refresh or sell at the same time, the floor that "for now" is holding starts to look a lot like a trapdoor. The trade that everybody agrees on is rarely the one that pays.

Still, Ireland delivered: Drinks, debates, and an industry that dances better than it forecasts. We'll be back in Dublin next year. Not to find out whether this market broke out – sideways markets always do, eventually. But we come back to find out who was still standing on the crowded side of the room when it did.

GFD, Good trading 🤝