Fear of a Tighter Q1

Yesterday, the market decided to grace us with yet another upward shuffle. A tighter market for liquids is pushing the spot market up—again—and there's little reason to think prices will start to fall anytime soon. One of the producers who had been warning us for this scenario forsees a longer upward trend, or as he put it,  "who doesn't love perpetually climbing prices?" Cream prices have waltzed well over €10,000, and whispers in France suggest prices even above €10,500. Raw milk prices in France are casually crossing the 70-cent mark here and there, and in NL/DE, raw milk trades between 62 and 65 cents. Only SMC prices have the decency to remain steady between €2,200 and €2,300.

But such a high spot market for liquids doesn't quite correspond with the prices paid for commodities. It seems that the buyers who chase raw milk and cream are turning these liquids into anything but commodities like butter and cheese. We'd expect this lack of production to start affecting both close-by and long-term availability, and it appears the buyers agree. We're already seeing buyers getting more worried about the rapidly rising offers they receive. The question is, what happens if this mild concern blossoms into full-blown panic?

So, we're back to where we were roughly five weeks ago: a tight spot market, fewer sellers for 2025, and buyers still declining to accept that high Q4 prices might just waltz into Q1. The only difference from five weeks ago? Buyers now have five fewer weeks to procrastinate on purchases, and prices have five fewer weeks to graciously tumble back. And given the trend, there's no reason to expect a miraculous reversal tomorrow.

Once again, the butter market is stealing the show. November prices for Irish butter have crept up to €7,650, and we see even more demand on the horizon. There's strong appetite for fresh butter, but we haven't found any offers below €8,000—or bids above €8,000, for that matter. The quotations were surprisingly meek: the Dutch butter quotation inched up by just €20 per metric ton, the French decided not to quote at all, and the Germans even lowered their quotations (though still sitting at €8,000). We'd expect the Dutch quotation to catch up next week since we can't find any Dutch butter below €7,500 as their quotation suggests. Q1 prices also moved up, with Irish butter reaching €7,225 and NL/DE/BE butter at €7,300. Newer offers are coming in higher. Q2 is also on the rise, with sales at €7,000 and offers now at €7,100.

Our expectation? Prices will continue to climb into 2025 as long as there are no signs that Q4 prices will take a nosedive. And with cream prices well over €10,000, we'd find it more likely for Q4 prices to increase rather than decrease.

Period	Origin	Size	Offer	Incoterm
November	NL/DE/BE	88	€7800	FCA NL
Nov-Dec	Danish	66	€7650	FCA NL
Q1	NL/DE/BE	132	€7325	FCA NL/DE/BE
November	Irish Sweet Cream	44	€7875	FCA NL
Feb-March	NL/DE/BE	88	€7450	FCA NL/DE/BE

Cheese is playing the tagalong game. Once butter prices started to ascend, cheese sellers pulled back their offers, and buyers are now on a "wild" goose chase to find that one seller who missed the latest market memo. But with raw milk prices well over 60 cents and cream prices topping €10,000, producing mozzarella at €4,100 and Gouda at €4,300 seems like wishful thinking. For those needing mozzarella and Gouda in January, they'll have to rely on December production. Even those looking to buy cheese just for Q1 will have to realize that the current steep backwardation is discouraging everyone from overbuying in the near term, making it highly likely that a lot of demand is yet to be covered.

Again, just like in the butter market, it feels like we're trying to convince the market to be bullish while it insists on being bearish. But in our analysis, it doesn't make much sense to expect January prices to trade significantly lower than December prices if the spot market for raw materials remains tight and there's absolutely no sign that farmers are ramping up milk production.

Period	Product	Size	Offer	Incoterm
Nov-Dec	Gouda (NL/DE)	88	€4550	FCA NL/DE
Nov/Dec	Mozzarella (NL/DE/DK/BE)	88	€4375	FCA NL/DE/BE
Nov	Emmental	44	€5150	FCA NL/DE
Jan-Feb	Mozzarella (NL/DE/DK/BE)	132	€4275	FCA NL/DE/BE
Q1	Gouda (NL/DE)	132	€4550	FCA NL/DE

And the powder market, is just compensating for all the excitement in cheese and butter. With almost no movement at all we keep the powder update short. More sellers at higher levels and more buyers at lower levels would suggest the market could, should and will stay in place.

Product	Origin	Volume	Period	Price	Incoterm
FCMP	IRL/N-Irl	88	Nov/Dec	€ 4200	FCA NL
FCMP BigBags	Belgium	36	Nov/Dec	€ 4250	FCA BE
SMP NonStand	UK	242	November	€ 2450	DAP NL
SMP Codex Fresh	Rucker/Uelzena	200	Nov-Dec	€ 2450	FCA NL
SMP Codex Older	Belgium	300	Nov	€ 2400	FCA NL
SMP Codex Low Heat	Arla	200	Nov-Dec	€ 2450	FCA

We asked ChatGPT to write a conclusion based on this report and the reports from the last weeks. We would have maybe toned it down a bit, but in general, we think ChatGPT nailed to summarize what we see. 

So, here we are, watching the market do its unpredictable dance once again. Liquids are tightening, prices are climbing, and buyers are still hoping for that magical downturn that seems as elusive as ever. Cream and raw milk prices are soaring, butter is stealing the spotlight, and cheese is doing its best to keep up—even if it's reluctantly tagging along. Buyers now have five fewer weeks to sit on their hands, and prices have had five fewer weeks to graciously deflate. But hey, why rush? After all, who doesn't enjoy a good last-minute scramble in a market that's showing no signs of slowing down In the grand scheme, it appears we're all participants in this market theater, trying to outguess each other while the fundamentals keep nudging prices upward. With no significant increase in milk production and raw materials remaining tight, expecting a sudden price drop feels more like wishful thinking than strategic planning.

Perhaps it's time to accept that the market has its own plans—and they're not exactly aligning with the hope for cheaper buys in Q1. As seasoned traders, we can either keep chasing shadows or adapt to the realities unfolding before us. After all, isn't navigating these twists and turns what makes trading so exhilarating? So, let's buckle up and prepare for the ride ahead. Who knows? Maybe the powder market will surprise us all and steal the next show. Until then, keep your wits about you—and maybe consider stocking up on butter while you still can.