Bullish International Markets

We've been away for a week. Family vacation. And while we genuinely love a good holiday, let me be honest about one key difference from a regular working week: this one costs money instead of making it.

Don't get us wrong — it had everything a regular working week as a broker gives us. Ollie and Lina turned out to be surprisingly familiar counterparts. We spent the week negotiating; no deal gets done unless dessert is on the table, and even then, terms can change last minute. We explained why things are expensive and why we ran out of cheese on Thursday (demand exceeded the supply). We answered questions we didn't know the answer to, and had to admit it. We tried mediating between two parties who simply could not align. It was working hard, just like we do for our customers, really — except our customers have slightly better table manners and tend not to wake us up at 6am with urgent questions. Actually, come to think of it — the 6am part isn't true.

We're genuinely happy to be back. Because as much as we love our kids — and we do — children are wonderful roughly 50% of the time. The problem is, they're awake for the other 50% as well. Anyway. Let's talk dairy.

Bullish International Markets

It seems we didn't miss much last week — and at the same time, we missed quite a bit.

Tuesday's GDT result came in strong, with a 3.6% overall increase and butter leading the charge at over 10% gains. Since that result, SGX futures have pushed even higher, suggesting the next GDT auction is unlikely to bring any correction on butter. And if you look at the forward curves on WMP, AMF and SMP, the picture is consistent: a clear upward trajectory from the January lows.

CME futures were choppy again last week, but zoom out and the trend is unmistakably steep — and pointing up. Butter and NFDM have both jumped meaningfully from their January lows, and at this point it's no longer a correction. It's a reversal. Stock data and rising export volumes support the move: even as US milk production continues to grow, export demand is absorbing the extra supply and keeping prices in an upward motion.

EEX butter futures tell a slightly different story. Since the short squeeze in early February, prices have drifted sideways and down — though thin liquidity is making the swings dramatic. Thursday saw Q2 butter slide toward €4,450 on heavy volume, only to recover to €4,600 by Friday on renewed buying interest. EEX SMP followed a similar script: a sharp rally in early February, a meaningful pullback — but with SGX and CME both trading constructively, EEX is starting to find some support as well.

Benchmarking EU Prices on Export

While international markets push higher, the EU is quietly doing what it does best: producing more milk. The latest data shows major EU producers running well over 5% above year-ago levels, with butter and SMP output comfortably ahead of last year too. Lower prices may be nudging consumption — we heard German retail is moving more packed butter — but like the US, the EU needs exports to balance the books. So this week, we decided to benchmark EU commodity prices against the rest of the world and assess how competitive European product actually is right now.

Starting with SMP, the picture is encouraging. As the chart below shows, the EU is expected to be competitive on the world market for the next four to six months — a welcome development given that EU SMP production has been running 15–25% above last year, with another 5–8% increase expected in the months ahead (although we think this forecast is conservative). New Zealand retains some structural advantages through trade agreements and logistics, but for near-term contracts, the EU looks well-positioned to take meaningful volume on the world market.

Butter tells a different story. The gap between EEX and CME prices remains wide — and even after adjusting CME to an 82% fat equivalent (versus the 80% shown in the chart below), European butter remains expensive relative to the US. For buyers without a specific need for European or New Zealand product, US butter is simply the better buy. We think the US can't afford to lose too much exports as strong milk solids and strong milk production continue to show in the forecast charts.

The EEX-to-SGX gap is another matter. The discount is large enough — roughly €1,000 per metric ton in April — to make EU butter genuinely attractive to buyers who can't use US product but don't have a hard preference for New Zealand. In theory, that should pull a meaningful volume of butter out of the EU. The window, however, is not permanent: the gap begins to narrow in Q3, and by Q4, when New Zealand enters its production season, the EU's price advantage fades.

What's interesting is how recently this dynamic emerged. At the start of the year, EEX and SGX prices were broadly on par, with the forward curve actually favouring New Zealand. Since mid-January, the EU has moved to a €500 discount — not yet large enough to trigger a wave of export buying, but the direction is clear. The question several of our partners raised last week is the right one: how wide does the EU-NZ gap need to be before buyers start diverting volume to European sourcing — and how quickly will that gap close again once they do?

Higher Production Forecast vs. Higher Export Forecast

This is where we move from data into assumption territory — and that's always where it gets interesting.

Everything shown above reflects real traded prices. What follows is based on historical trends and forward expectations, sourced from StoneX Plus data. Take it for what it is: a reasonable forecast, not a guarantee.

Looking at butter production in the EU over the next four months — March through June — the forecast shows an additional 48.9kmt compared to the same period last year. That sounds significant, but the detail is worth noting: the rate of increase is slowing down meaningfully. Over the past six months, EU butter production ran roughly 9% above year-ago levels. This forecast drops that well below 5% — even as milk intake shows no sign of slowing yet. That's a conservative assumption, and we'll treat it as such.

On the export side, the numbers line up almost perfectly. The forecast shows roughly 43kmt in additional butter exports over the same period — nearly matching the extra production volume. On paper, the market balances.

But here's the footnote we can't ignore: hitting those export numbers would require the EU to post its highest butter export volumes since 2010. Not impossible — but not a given either. With US butter still aggressively cheaper on the world market, we think this forecast is leaning optimistic on the export side. The historical data below speaks for itself. Comparing the full years roughly gives the same year comparisons, but we wanted to keep it Jan-June data only.

So what does this mean in practice? If exports do come in as forecast, the extra EU production gets absorbed and stocks remain manageable, supportive for prices. If they don't, and the US continues to outcompete on price, a portion of that extra 48.9kmt has to go somewhere. Most likely into EU cold storage, which would start to weigh on the market in the second half of the year.

The honest conclusion: the production and export forecasts roughly cancel each other out — but only if everything goes to plan. And in this market, that's a big if.

SMP: Exports Outpacing Production

We ran the same exercise for SMP — and the picture looks meaningfully different from butter.

On the production side, EU SMP output is forecast to increase by roughly 55kmt over the first six months of 2026 compared to the same period last year. Significant, but manageable. On the export side however, the expected increase is 85kmt over the same period — outpacing production growth by around 30kmt.

Where butter's extra production and extra exports roughly cancel each other out, SMP tells a more bullish story. If these export volumes are realised, the EU will be drawing down SMP stocks considerably faster than it builds them. That's the kind of dynamic that tightens a market — and it's worth watching closely in the months ahead.

A small but important footnote before we draw conclusions: just as with the butter data, the 2026 export figures carry an asterisk. These are forecasts, not realised volumes — and the difference matters.

That said, if the forecasts prove correct, the numbers are striking. On the export side, 2026 would rank as the second strongest year on record, surpassed only by 2019 — the year the EU was actively climbing out of its intervention stock surplus. That context is worth remembering: 2019's export volumes were exceptional precisely because the EU had an unusual amount of product to move. Matching those numbers under normal market conditions would be a remarkable achievement.

On the production side, the picture is arguably even more significant. If the forecast holds, the EU will produce more SMP in 2026 than in any year over at least the last fifteen years. Given the milk production trajectory we're currently seeing, this is not a tail risk — it is the base case.

The key difference from butter is what happens when you put production and exports side by side. With butter, the two largely offset each other. With SMP, exports are forecast to grow faster than production — which, if realised, points to a meaningful stock drawdown. For a product that has spent years building up surpluses, that would be a significant shift. We're not calling a bull market in SMP just yet. But the direction of travel is clear.

Conclusion: Two Markets, Two Very Different Stories

The EU dairy market in 2026 is not one market — it's at least two, moving in opposite directions. And the difference matters for anyone with a position to manage.

On butter, the arithmetic is uncomfortable. EU butter stocks built rapidly through the first half of last year, and the forecast for 2026 suggests more of the same. Production is expected to outpace last year by nearly 49kmt over the next few months. Exports are forecast to absorb roughly the same volume, but as we noted earlier, we think that export forecast is optimistic. With US butter still aggressively cheaper on the world market, the EU is not the obvious choice for buyers who have alternatives. If exports disappoint, and there is no meaningful pickup in consumption — the German retail data is encouraging but not yet market-moving — that extra production goes into storage. Straight into an already building stock pile.

If that scenario plays out, EU butter stocks will hit June 2026 at the highest levels on record. That is not a price-supportive environment. EEX futures may find short-term support from international sentiment and thin liquidity, but the fundamental picture for EU butter remains bearish, and we see no compelling reason to revise that view.

SMP tells a different story. Stocks are near historical lows, and while production is running at record levels, exports are forecast to grow faster than production. If that holds, the EU will be drawing down SMP inventories at a meaningful pace. The bullish case for SMP is structurally stronger than for butter, and the data support it.

The asterisk, however, applies here too. Hitting those export forecasts would require the EU to post SMP export volumes rivalling 2019 — the year the bloc was actively clearing out intervention stock accumulated during the crisis years. That was an exceptional set of circumstances. Replicating those export numbers under normal market conditions is possible, but it is not guaranteed. If exports come in short of forecast, the stock drawdown slows, and the bull case weakens accordingly.

The honest summary: butter bears, SMP bulls — but hold both views with appropriate humility. The forecasts are pointing in the right direction. Whether the market follows is another question entirely.

Final Note

After a week of negotiating with counterparties who don't understand margins and wake us up at 6am with non-negotiable demands, we are back — fully rested, moderately caffeinated, and ready to talk dairy.

We're available this week to discuss markets, positions, or anything else on your mind. And for those looking for a place to trade, don't forget our marketplace is open and actively looking for volume. Reach out. Let's trade.