The first three trading days of this week have brought back plenty of twists and turns. With a continuation of a tight spot market, prices for nearby contracts continue to trade at high levels, although the first signals of a weaker market are starting to emerge. We’re seeing more offers, yet there’s a clear mismatch between what’s being offered and what’s actually in demand. Meanwhile, the GDT showed little direction, landing flat at 0% from the previous event. Sure, there are some bullish and bearish elements in the details, but the overall takeaway? The market is treading water. That said, the outlook for EU dairy prices is starting to look weaker. The physical market remains tight, but in futures, the bears are back, dragging the butter market down almost €250 this week alone. The real question is—what’s making them so aggressive?
To be frank, we haven’t quite cracked the code yet. But as we’ve said before, we’re noticing a few elements that, when combined, could lay the groundwork for a bear market in the months ahead. High milk prices should boost milk volumes, fat and protein content is up in many countries, Ireland seems poised for a strong season, and we’re seeing more product from the US, NZ, and Ukraine entering the EU. On top of that, exports are under pressure due to competition from the US. Throw in recession fears and potential demand destruction, and the bears have a full-fledged case.
But let’s not forget, we’ve been down this road before. Despite these same arguments, the market for butter and cheese has risen by almost 10% in recent months. Fears over bluetongue, low starting stocks for the year, and steady demand from nearly all industries have kept the market higher for longer than many anticipated. GDT continues to show strong demand for butter and cheese. And if the market faces new production challenges due to drought or rising energy costs, things could turn bullish in a hurry.
It seems fear and uncertainty have driven buyers to the market over the past few weeks while keeping sellers cautious. Those now selling forward at lower levels seem to be betting that today’s anxious buyers and hesitant sellers will shift market dynamics, leading to a scenario where buyers might have overbought and sellers have undersold. Those banking on a weaker market are taking a big risk—but if it pays off, it could pay off handsomely.
GDT: In Line with Expectations
Tuesday’s GDT results came in as expected. EU butter traded just below €7,550, though we suspect buyers might think twice before paying that price today. NZ butter prices unexpectedly ticked up, while AMF declined yet again. Interestingly, we’re hearing chatter that some EU buyers are even considering purchasing AMF, importing it despite the duties, and still landing below EU price levels. This could explain why some EU partners are leaning bearish on fat prices moving forward.
Liquids: Weaker
Good weather is boosting volumes, while demand remains sluggish. More raw milk, more SMC, and even a slight uptick in cream are making their way to the market. After trading at €9,150 last week, cream prices have now slipped below €8,800, with some claiming purchases around €8,600 FCA Eastern EU. SMC prices are also under pressure, settling well below €2,000 FCA. Some partners expect cream prices to rebound if Easter demand kicks in.
Butter: Weaker
The butter market took a noticeable dip yesterday. Futures for the latter half of the year are trading as low as €7,250 for Q4 and €7,275 for Q3, while Q2 prices are still holding higher. The strong backwardation signals that the market remains tight, but expectations are shifting toward looser conditions. Ukrainian butter imports seem to be playing a key role here, widening the spread between Polish butter (€7,300 offers) and Ukrainian butter (€6,700 DAP NL). That’s a significant price gap, giving a growing group of buyers the opportunity to lock in cheaper product.
We did broker some butter yesterday at €7,320 for Irish butter and €7,325 for NL/DE/BE for May-July. At these levels, we’re seeing a bit more buying interest, potentially setting a temporary floor. However, for Q3 and Q4, bids have dried up, with most buyers focusing solely on April offers.
We expect to have demand for:
- 4 loads of Irish butter for April at €7,300 FCA NL
- 4 loads of Fresh Belgian butter for April at €7,400
- 2 loads of Lumiko lactic for Early April at €7,200
- 6 loads of Irish Lactic Frozen FCA NL for May/June at €7,200
- 4 loads of Lakeland N-Irish FCA NL for May-June at €7,100
Cheese: More Sellers
Should we call cheese weaker? Maybe not exactly. But we are seeing more sellers willing to engage at these high prices. Not many of our partners believe that lower US prices (which compete with EU cheddar) and declining fat/protein prices (making cheese production more favorable) leave much room for significant upside. However, similar to the butter market, there’s not a lot of fresh stock available. No real pressure from producers either. Once again, the bears expect a drop, but for now, we’d still favor the bulls.
For closeby, we see buyers for:
- Mozzarella at €4,200 for April
- Gouda at €4,350 for prompt
Powders: Weaker
A weaker GDT is pushing expectations even lower. Even our more bearish partners were caught off guard by the latest SMP results. But with sluggish EU demand, a weak US market, and declining SMC prices, should it really have been a surprise? While the market is still well-supported by buyers, there’s a real chance it could slip further. The cash-and-carry trade remains active, with spot and Q2 purchases around €2,300, while sellers can still place Q3 trades at €2,500+. However, if futures lose support, the physical market will likely follow suit.
We expect to have offers for:
- 200mt Uelzena SMP MH Prompt at €2,375
- 150mt Arla SMP MH Prompt at €2,350
- 300mt Q2 April-May-June, SMP MH, German at €2,375
- 90mt SPW Spanish, FCA NL at €975
- 50mt BMP N-Irish at €2,650
So, where does that leave us? A market teetering on the edge, where fear, uncertainty, and a few bold bets are setting the stage for what comes next.
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