Last week, the market took a bearish turn—expected by many, yet only anticipated on by some. Historically, high milk prices have driven commodity prices lower, and the upcoming months appear to be no exception.

However, unlike previous bearish trends, few traders seemed confident enough to anchor their strategies around this development. This hesitation is understandable, given the many uncertainties still at play. While we maintain a bearish outlook for the coming months, we also recognize the bullish underlying data.

Bulls have valid reasons for their confidence, yet bears shouldn’t lose hope. We do believe that the bearish trend won’t dominate the market as long as the bullish trend did. If this introduction seems cryptic, allow us to explain our logic further.

Why More Milk is the Key Factor

We’ve emphasized this time and time again: long-term price trends hinge on the balance of supply and demand. For many months, this balance has tilted in favor of demand—or rather, against supply. Low milk prices did little to incentivize farmers to maximize output, compounded by last year’s unfavorable weather conditions. Prolonged wet periods severely impacted milk production in regions like Ireland. Moreover, the political climate has done little to inspire farmers to invest in long-term growth. The added effects of diseases like bluetongue only worsened the situation.

Looking ahead, conditions seem better. With milk prices ranging between €0.52 and €0.58 per liter, EU farmers are incentivized to increase output. The effects of bluetongue are not expected to worsen over the next 4–5 months, and October and November have been considerably drier, improving weather conditions. However, political pressures remain a suppressing factor, and we anticipate these effects to increasingly impact EU milk production.

In summary, the potential for milk growth over the next five months appears stronger than it was a year ago. Early indicators already suggest growth in EU milk supply. However, long-term prospects remain less optimistic. If commodity prices decline by summer’s end, as we predict, milk prices could fall below €0.50 per liter and lower. With political agendas focusing on reducing livestock numbers, and more farmers exiting the industry without successors, the future looks challenging.

GFD Outlook:

• Short-term: Bearish on milk prices due to increased supply.
• Long-term: Bullish, driven by unfavorable long-term conditions.

Butter: Cash-and-Carry in Focus

The butter market saw a sharp decline last week, finding slight support on Friday. We anticipate further price drops by week’s end. While some sellers disagree with our outlook, citing strong bullish arguments, there are valid reasons for caution. Cream prices remained above €10,000 last week, driven by strong retail demand, and prices for December and January are consistent with November levels. Bullish proponents expect continued robust demand from retailers. In addtioiin it seems a lot of buyers are still in the market for winterbutter, and the production window is only 4 months and there is no incentive for producers to produce at prices below € 7000.

However, high retail prices often dampen demand over time. Retail demand has stayed strong, even with prices exceeding €8,700, but retailers have yet to pass these costs onto consumers. When they do, a correction in demand is likely. Already, brands like Lurpak and Kerrygold are struggling with volumes as consumers shift to private-label options. And those in need of winter butter simply hedge themselves on futures (although we still have a hard time seeing how futures in Q2 and Q3 secure you a price for butter produced in Q1.

Another bearish signal is the sudden availability of stock for December. While earlier months showed limited availability, December has seen producers, traders, and end-users offloading excess stock. This has driven prices down sharply. For example, last Friday, over 220 metric tons of Irish butter traded at €6,725, with some partners reporting prices as low as €6,600.

For Q1, prices dipped to €6,800 before rebounding slightly to €6,875. Although some demand remains, we expect the market to decline further once these needs are met, potentially making cash-and-carry strategies viable again.

Long-term, our outlook for butter remains bullish. Increased milk allocation to cheese production could limit butter output in the second half of next year. Additionally, as buyers increasingly manage risk through futures rather than physical stock, we may face a significant butter shortage in Q4 2025.

GFD Outlook Butter:

• Short-term: Bearish due to excess stock and lack of cash-and-carry schemes.
• Long-term: Bullish due to insufficient butter production.

Cheese: Redirecting Milk Production

With EU milk production set to rise, the question is: where will the milk go? We anticipate much of it will be allocated to cheese production, given the bearish outlook for butter. This trend has been evident in recent months, with increased cheese factory investments and limited flexibility to switch between cheese and butter production. We may see shifts in cheese types, with lower fat valuations reducing mozzarella production in favor of Gouda and Edam. While the current gap between mozzarella and Gouda/Edam prices might persist into Q1, we expect it to narrow in Q2.

Despite our bullish butter outlook for the latter half of next year, cheese could follow a similar trajectory. If EU cheese prices correct, exports may peak when milk production dips. This shift from cheese to butter could drive up cheese prices as milk and cream supplies tighten.

GFD Outlook Cheese:

• Short-term: Bearish, especially on Gouda and Edam.
• Long-term: Bullish across all cheese categories (H2 2025).

Powders: Algerian Tender Disappoints

With bearish outlooks for milk prices, butter, and cheese, it’s no surprise the powder market follows suit. Our bearish outlook extends through Q1 and Q2, with parallels to 2024 and 2023 patterns. Buyers continue to buy dips but hesitate when markets rebound.

SMP prices are likely to fall further. The ONIL tender failed to meet high expectations, with prices between $2,800 and $2,900—lower than partner estimates of $3,000–$3,100. Additionally, much of the volume wasn’t booked in the EU, dampening demand further.

EU spot prices for SMC also suggest cheaper SMP production in the coming months. Unlike butter, the SMP market offers viable cash-and-carry opportunities, keeping stock levels stable and markets rangebound.

Conversely, FCMP and WMP prices have risen. With declining milk production in China, competition for WMP could drive prices higher. Similarly, strong WPC80 demand may push SWP prices up.

GFD Outlook Powders:

• Short-term: Bearish on SMP.
• Long-term: Stable.
• FCMP & SWP: Short-term bullish.

Final Thoughts: A Temporary Bearish Phase

Overall, our outlook is bearish for most commodities—cream, raw milk, and SMC leading the way, followed by butter, cheese, and SMP. However, this bearishness is driven by short-term factors like excess supply and a lack of cash-and-carry strategies. Once the market transitions from backwardation to contango, we anticipate a return to bullish conditions. Until then, expect red charts to dominate through the festive season.

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