Lower Prices Reveal Hidden Demand

Yesterday’s market experienced another upward movement. Following several days of sharp declines, the market appears to have found its floor, with a quick rebound and reversal. Both butter and cheese markets have seen significantly increased buying interest following the rapid drop in prices. Buyers who previously declined the falling offers earlier in the week have now reentered the market, competing for the quickly vanishing bids. The brief dip in fat prices uncovered latent demand, which had been subdued but reemerged as prices fell. Simultaneously, higher prices drew out more sellers, while the lower prices attracted more bids. The key question in the coming weeks will revolve around identifying the level at which supply and demand will find equilibrium.

In our market reports, feedback is something we’ve come to expect. While some reports naturally attract more attention than others, yesterday’s analysis prompted an unusually strong response. Interestingly, the feedback was polarized: some readers struggled to understand our perceived shift from a bullish to a bearish market stance, while others viewed our bearish analysis as still overly optimistic. As we've reiterated before, our purpose isn’t to appease, but to provide insight based on our market observations. However, crafting an explanation that accurately reflects both what we see and think has proven challenging in this thin and uncertain market. The prevailing sentiment is that the market is exceptionally fragile, where even minimal activity can result in significant price swings. A few large buyers can push the market up by €500, and a few large sellers can pull it down by the same amount. We anticipate heightened volatility in the coming weeks and apologize in advance that our forecast will be wide and uncertain.

The liquids market remains tight.

Despite milk volumes increasing at a faster pace than in recent years, the spot market for liquid dairy products remains constrained. Raw milk prices are hovering slightly above €0.60, although we are hearing reports of some milk being traded below this threshold as availability marginally improves. The skimmed milk concentrate (SMC) market has also softened somewhat, with prices ranging from €2300 to €2400, but demand remains solid at the lower end of the spectrum. Cream prices, meanwhile, traded between €9700 and €9900 throughout the day, showing no signs of weakness. Most traders expect cream prices to hold firm in the coming weeks, especially with Christmas demand likely to bolster the market.

Butter: Bullish Recovery

The butter market quickly found upward momentum again yesterday morning. Q1 futures jumped from €6680 the previous day to €7125 early on, while December prices surged from €7000 to €7350. November futures saw a similar €300 increase from the day before. We found ourselves chasing previous day’s offers, but availability dried up quickly. On Tuesday, October sellers were at €7200, but by the end of the day, we saw prices at €7550, with some trades for Irish butter reported back above €7600 FCA Ireland.

These rapid movements led to intense discussions with our partners regarding the forces driving this change. Are these price shifts driven by a few traders manipulating futures and broker activity, or is there a more fundamental market shift occurring? While we generally dismiss theories of market manipulation, it’s clear that in such a thin market with limited participation, even a few trades can cause significant price movements.We would not exclude the fact that some participants are aware of the impact they can make in this market. Based on current cream market dynamics, we believe Q4 butter prices should realistically trade between €7500 and €8000 (with fresh butter at the higher end and frozen butter lower), while Q1 is likely to see slightly lower prices around de € 7000 level. The closes we come to the end of Q4, the closer Q4 prices should trade closed to Q1 levels.

Current Butter Market Overview:

NL/DE/BE

Period	Bid	Size	Offer	Size
October	€7350	44	€7600	88
Q4	€7250	132	€7550	132
Q1	€6900	132	€7050	66
Q2	€6300	132	€7000	66

Irish Butter

Period	Bid	Size	Offer	Size
October	€7300	44	€7550	88
Q1	€6700	132	€7250	Indicative

Cheese: High Uncertainty

The cheese market remains exceptionally nervous. As we noted yesterday, there’s a strong correlation between butter and cheese prices, and with the recent increase in butter prices, cheese has followed suit. We managed to trade some mozzarella for November/December at €4350, but immediately afterward saw increased buying interest. In Gouda, buyers have returned, targeting prices between €4500 and €4600, though sellers are holding out for offers above €4800. For Q1, we’re seeing more buyers enter the market, but they’re looking for prices around €4000 for both Gouda and mozzarella, while sellers are maintaining offers closer to €4400 and above.

Cheese Market Overview:

Gouda

Period	Bid	Size	Offer	Size
October	€4500	44	€4820	44
Q4	€4500	132	€4850	132
Q1	€4000	132	€4500	132

Mozzarella

Period	Bid	Size	Offer	Size
October	€4250	44	€4650	44
Nov-Dec	€4350	132	€4750	88
Q1	€4000	132	€4400	88

Powders: Continuing Decline

The powder market remains under significant downward pressure. We executed a trade for Codex powder today at €2390 DAP NL, and there is a noticeable increase in sellers entering the market. Discussions with our most experienced partners suggest a prolonged bearish outlook for powders. Several factors contribute to this, including weak global demand, higher milk production in New Zealand, and limited export opportunities for the EU. These conditions point to sustained downward pressure in the powder markets.

Product	Origin	Volume	Period	Price	Incoterm
FCMP	IRL/BE	132	Oct	4170	FCA NL
SWP	Spanish	150	Q4	935	FCA SP
D40	Spanish	200	December-March	1050	FCA SP
SWP	Polish	100	Oct	1100	FCA PL
SMP Codex	Belgium	100	Oct	2425	FCA NL
SMP Codex with Export docs	BE/DE	150	Q4	2425	FCA BE/DE

We would have the following bids

Product	Origin	Volume	Period	Price	Incoterm
FCMP	IRL/BE	44	November	4100	FCA NL
SMP Nonstand	EU15	100	Oct	2400	DAP PL
SMP Codex	Belgium	100	Oct	2300	FCA NL
SWP	EU27	50	Oct	825	DAP