If We Learned Anything Last Week…

It’s that speculating without hard facts can be very hazardous. A single suspicion drove commodity prices down, only for them to bounce back once the rumor was dispelled. Producers reminded us all week that they weren’t ready to sell off stock just because of a scare. As a former trader, I might see it as a risk in milk valorization, but for cooperatives, the stakes can be higher if they diverge from the group.

We didn’t see most producers in the market last week, and we don’t expect much of them this week either. Sure, there’s no sign (yet) of FMD spreading further, but it’s way too early to be popping champagne. We’ll need a few weeks of zero new cases, plus a plan from Germany to get its products flowing again—both to export destinations and EU neighbors. Until there’s clarity, producers may continue selling only the bare minimum, tightening the market and limiting the fresh supply.

Should We Expect Prices to Rise?

Prices corrected by roughly €300 during the height of the panic, then bounced back by about €200. Fundamentally, the EU’s supply-demand balance hasn’t changed much, so it wouldn’t be shocking if prices returned to pre-FMD levels. But then again…

Supply vs. Demand Tug-of-War

While producer activity may stay muted, buyers could also slow down. Especially those who rely on exports are getting cautious—some prefer to wait for the EU’s official “all clear.” Because if a new case emerges in Germany or a neighboring country, we’ll be right back where we started.

If the EU misses out on some export orders and domestic buyers postpone their decisions, stock pressure could creep up again. Add the usual seasonal milk growth—producers have to decide where that milk goes. Cheese and whey have had decent returns, but if German producers can’t move their whey, they might pivot more toward butter and SMP. Last week’s noticeable dip in whey concentrate prices suggests fewer opportunities for whey-based products.

Traders Caught in the Middle

Traders are squeezed between hesitant suppliers and buyers who’d rather wait and see. Normally, this is the part where traders excel at forecasting the next market move, but with so many unknowns, it’s easier said than done. The question we heard most last week—“What would you do?”—got different answers on different days. But by Friday, we were consistently advising everyone to “wait and see!” Since Friday the 10th, we’ve been sitting between hope and fear—two notoriously terrible advisors. Below, you’ll find our observations on specific commodities.

Butter: How Long Can Low Stocks Dominate?

Since September 2023, the EU has produced less butter than the same month in the previous year, creating a fast-growing deficit—especially with exports hitting their strongest levels since 2020 from September to December. Less production plus higher exports drained stocks in a hurry.

From September 2024, production has been outpacing 2023, and exports reportedly dipped, so stocks are now rebuilding at a decent clip. That might speed up further if imports from New Zealand, the U.S., and Australia land in the EU in the coming months, alongside continued strong production.

Of course, these factors will have the biggest impact once seasonal milk volumes really ramp up and imports arrive. Neither has exerted major influence yet, so nearby butter remains tight and pricey. There is still a backwardation into Q2, but the gap is shrinking. We’ll open the week with the following bids:

• 4 trucks Solarec Fresh at €7200 for February
• 2 trucks NL/DE/BE fresh/frozen for February at €7200
• 6 trucks NL/DE/BE fresh/frozen for Q2 at €7000

Cheese: Can Exports Continue?

Last week’s hot topic for cheese was whether exports would keep moving. Powders and butter can hold their value in storage, but cheese that ages by a few weeks can lose quality and price rapidly. Many of our partners tried swapping out German product for other EU sources, but not all non-German producers could guarantee zero German milk in their supply, creating the same export blockage. By mid-week, some producers managed to certify their milk as free from the affected region, but plenty of partners still struggled to get product on ships.

What’s next? Based on various news reports, German agricultural officials are doing all they can to persuade buyers to keep importing German/EU cheese. Whether that works remains anyone’s guess. Prices took a dive on Wednesday and Thursday, then nudged upward on Friday, but we haven’t seen many buyers rushing to pay last week’s pre-FMD prices. We plan to start the week with:

• 6 trucks Mozzarella (NL/DE/BE) at €3950 for Q2
• 2 trucks NL Gouda for January at €4050

Powders: Heavily Dependent on Exports

The powder market relies heavily on overseas demand, and that demand seemed to hit pause at the start of last week. However, as days passed, more partners reported that non-German product wasn’t facing significant hurdles—only German-made powders were. The biggest worry is that Germany could be locked out of certain markets (like China) for some time, especially on WPCs, which has some partners losing sleep.

Tuesday’s GDT might shed light on how global markets are reacting to the FMD headlines. Some expect only minimal impact; others anticipate big disruptions. We’ll let the market do the talking. For now, we’re kicking off with:

• 200mt of older codex at €2200
• 300mt of older non-standardized at €2375 (min 36% protein)