There was a train of thought that high prices would dampen high prices, but as yet it hasn’t kicked in. There is also the realisation in the trade that retail prices have not yet taken up all of the commodity price rises that have come in the last couple of months.
Cheese is one example. For months, traders have been thinking that cheese prices are going to level off, but it hasn’t happened yet.
In fact, over the past two weeks, the market has pushed on again.
Quotes for Gouda and Edam rose to €4,800/t last week.
Currently, it could even be €5,000-plus. Processors and traders are afraid to sell large volumes for fear of locking into prices that are too low.
For delivery in the third quarter, prices of €6,000/t are required, according to EU market traders.
Customers are reluctant to lock in at these record prices at high volumes, which means that they will play the spot market more at times like this.
If the full price is passed on to the customer, demand drops and then the retailer loses out. They don’t want that to happen. Negotiations between processors and retailers will be going through a difficult phase.
Processors could decide to change product where they get higher margins unless price goes up. Already, we see stats that January cheese levels are lower for some products.
Product choice will be related to milk supply and if that is back as well, then it puts on more market pressure. We see lower milk supply and if fertiliser is restricted or reduced, milk supply, especially in Ireland, will be back.