Bear in the Warehouse, Bull in the Gym

We have been off for two weeks, but we are back and ready to broker and advise in this ever-changing dairy market. As expected, fat prices across the EU and beyond continue to drop, while protein prices have found their way up. And with protein rising faster than fat is falling — in terms of milk price impact — the current price development looks healthy for farm gate prices. With some coops already increasing their pay-outs, farmers are getting a clear message: please, keep milking. Because the world might be facing more milk, but somehow we keep consuming it. And where butter did the heavy lifting these last two years, it seems protein is now not only helping with the heavy lifting in the gym, but also in the dairy market.

That protein prices continue to rise clearly says something about the demand side of this market. Because with worldwide milk volumes on the rise — amidst a global market shakeup and loads of uncertainty about the economic outlook — the setup could also form the perfect basis for a more bearish market. But the uptrend in proteins seems unstoppable. We are not as well placed in the world of whey proteins, but one look at the price development via Vesper's VPI, or just following the spot market for whey concentrate, tells you demand seems insatiable, and it's more a lack of production capacity that's keeping prices elevated despite the current milk surge.

Because if we only focus on milk intake, we would become a lot more bearish. Milk intake numbers across the EU continue to impress, but it's not only EU milk collection that's strong. NZ, Argentina, the US — they all show solid numbers, with no sign of a real slowdown. The big increases of +7 to +9% might be behind us, but recent numbers still show +4 to +5% and even +6% in the bigger EU producing regions. France is starting to slide a bit below last year's numbers, but milk intake still looks stronger than production capacity can handle. Raw milk prices continue to trade around 10ct and lower, SMC is trading below €800, while whey concentrate is trading well above € 1,000 and cream is just above or just below €3,000. And for us, that's the biggest indicator that the current oversupply on spot liquids (or the lack of production capacity for some products) is far from over. Spot liquids could increase by almost 50% before they start to valorize above the commodities we broker. Even a 2-3% seasonal drop in milk volumes is unlikely to trigger such a move.

GDT: Show the way

After a few calls around the market on Monday, it seems pretty clear most partners decided to wait for the GDT to show the market direction. Looking at the indicators, we would expect the event to trade slightly higher over this event. Athough bullish prices will not show in every category. Butter prices, especially those of NZ, are expected to take another hit. With CME and EEX prices clearly below the tender results of two weeks ago, and NZX futures almost down 10%, there is little optimism. But GDT butter always outperforms our expectations, so we would forecast them between -5% and -7%. Solarec prices are expected to perform better than the latest trades for NL/DE/BE butter we have seen. We would expect Solarec prices to end up between €3,950 and €4,000, outperforming the Irish butter price by about €350-€400. AMF is likely to follow the butter trajectory, but to which lows we are unsure.

Cheese prices are expected to soften as well, but to what extent we are not sure. Mozzarella prices already took a step back last event, but a modest further decline seems likely given the current market sentiment on dairy fat.

WMP prices are forecasted rather flat, and looking at our latest brokered prices, that seems in line with what we see. A small correction seems more likely if we look at the fat market, than an increase — but to what level is a question mark. Anything within -1% and +1% would not be outside our forecast.

SMP prices during the last event jumped up a good 3%; whether they can show another strong increase, we wonder. From an EU perspective and the market we see, we are sure we will see higher prices. But focusing on the NZ powders, it is questionable if the EU can push NZ prices higher as well. Also here, the outcome could be rather flat. Looking at NZX futures, the market could see a 2-3% increase. If EU enthusiasm feeds the sentiment, we could see that increase materialize. But recent tempered prices on CME might cool the GDT SMP sentiment as well a bit...

Butter: Bearish All Over the World

The butter market is in clear bear regions. Since the start of our break on the 18th of April, the market shook off about €200 in the EU, thats rouhgly 5%. And with the GDT results still questionable, we don't know where NZ is trading yet, but if futures point in a direction, it's down. CME prices since the 18th also shook off about 10%. In that light, the EU is holding remarkably well, only losing about 5% of its value. But with prices still under pressure, from our point of view it seems likely the EU will shed some more value before it can find some floor.

Cream prices are clearly still well below butter equivalent between € 2900 and € 3300. With western EU prices between €3,600 and €3,700 for May/June, and eastern EU prices roughly €100 lower, the value of butter (from a cream perspective) could drop another €400-€500. That continues to be in line with our long-term market view that, given the expected stocks in the EU and the expected problems that go along with that, the market value of butter in May/June should find a floor around €3,000. Looking at the US June contract on CME, that would not be far from where the US is trading. In our view, the EU needs to become competitive for a short window to unload some butter on the world market.

With May having a lot of bank holidays, we expect cream prices to remain weak unless milk volumes in the EU drop significantly. But with no clear signals yet of that happening, cream prices could trade over the next weeks between €2,800 and €3,300, suggesting fresh butter production well at and below €3,000.

Again, speaking to market traders, we still see the same market dynamics from when we left. Demand for Q2 and Q3 is absent, and some end users again have to postpone Q2 contracts into Q3. Demand for Q4 and early 2027 is still showing, although interest is fading and the paid premiums are shrinking.

Warehousing remains an issue in the Netherlands, Belgium and even France, with capacity filling up and defrosting capacity fully booked. This market continues to stretch its stock as far as it can, taking pressure off a faster price fall in 2026, but capping the possible price recovery for 2027.

This market will continue to trade bearish as long as end users fear higher prices and producers hope for them. Only when the fear of higher prices disappears can this market clear the runway for a price recovery. Until then, end users will continue to buy from traders at a premium 12-18 months forward, and producers will have to sell at those same traders at a discount for spot. Anyone with a calculator should be able to spot the winners here.

Powders: Bullish All Over the World

How different the powder market feels. Here we have buyers who became comfortable on months of steady low prices, and producers who became eager after months of selling at a discount — finally able to sell at a premium. And although some might say that actively enthusiastic producers, and buyers pushing back on prices, describes a bear market, for us it is exactly the recipe a real bull market needs.

It's the counter-psychology of the butter market. Still speaking to partners and following the online discussions, the disbelief — among both buyers and sellers — that this price rally can last is what makes us more bullish than many of our peers. Yes, we have cheap SMC. Yes, we have a lot of milk. And yes, the EU is building a bit more stock. Same dynamics as the butter market? No, we don't think so.

The SMC market is not a representation of low demand, but of a lack of production capacity. And although that might also be true for butter production capacity, butter also has a demand issue alongside it. Powders do not. And stocks? Nowhere near our all-time highs of 2019, when the EU was carrying roughly three times what it does today. Anyone with a data fetish — go online and find out for yourself how fast those 300kt+ got exported. Within a year, the EU cleared roughly as much stock as we are currently carrying. And where butter needs high exports for years in a row to clear stocks, powder needs only a few solid months of being the best source for export destinations to take a big bite.

With that in mind, and looking at the insatiable demand for whey proteins, we would not be surprised if the market finds its way from WPCs to MPCs — and with that, draws EU SMP stocks down. With NZ expected to be absent from the next big Middle Eastern tenders, and the US showing us an SMP equivalent of around €4,000 on spot, the EU should bridge that €1,200 gap at least a bit. Therefore, spot prices for SMP should be able to hit €3,000+ sooner rather than later, in our view. Let's see if tomorrow GDT confirms our view.

Final Note

So, we are back. And as we had hoped — perhaps feared — the market is largely trading in the same direction we left it two weeks ago. Fat continues to drift lower, protein continues to push higher, and end users and producers continue their familiar dance of fear and hope.

Our view going in is unchanged. Butter remains bearish: stocks are heavy, demand is absent for Q2 and Q3, and the EU will need to be globally competitive — somewhere around €3,000 in May/June — before this market finds a real floor. Powders are the mirror image. Capacity-constrained, well-supported by global protein demand, and built on a healthy bull-market psychology where neither buyers nor sellers really believe the rally. That, for us, is exactly when these things tend to last.

Two markets, two stories, one desk to broker them. If you want to talk butter, cream, AMF, SMP, WMP, cheese, or anything in between — pick up the phone, drop us a message, send a smoke signal. We are here, screens are on, and the brokering floor is open again.

GFD — Get Fair Dairy / Good trading. 🤝