Bullish Mood, Bearish Milk

Our first four trading days of the year are behind us. While activity has been limited, there is still plenty to unpack. Market sentiment feels—dare we say—more bullish than bearish. However, the bulls remain firmly grounded by an overwhelming supply of liquids. In theory, a lack of sellers and buyers’ fear of missing out should be fertile ground for a price recovery. In practice, spot milk around 10 ct, SMC trading at €300–€500, and cream still available near €3,500 mean there is simply too much supply for prices to lift meaningfully.

Today’s update is intentionally short, as the market is showing little fresh direction. Butter prices remain largely flat, although some cheaper Polish spot loads are putting mild pressure on the front months. We are hearing prices between € 3800 and € 3850 fca for January. Powder prices are firmer—more so on futures than in the physical market, but demand outpaces supply clearly. Cheese, meanwhile, remains quiet; we have not been able to attract any business as the gap between bids and offers in simply to wide. Conversations with traders confirm that selling Gouda, Edam, or Mozzarella above €3,000 FCA remains difficult, despite offered volumes being scarce. Fresh commodity supply is relatively tight, but demand remains patient and in no rush to step in.

Liquids: Peak Milk Well Before the Flush

It’s only week two of the year, with just four full trading days completed. Commodity markets still feel as if they are waking up. Milk intake, however, tells a very different story.

Volumes across Western Europe resemble those typically seen between weeks 12 and 20. As one producer put it: “We are dealing with peak milk volumes in some areas, while we are nowhere near the flush. Factories running at full capacity, something that rarely happens in January”

Current spot milk prices are therefore less a reflection of weak commodity demand and more a signal of insufficient processing capacity. Raw milk is being offered not only cheaply for next week, but also forward at levels between 10 and 15 ct FCA in Western Europe.

Cream remains around €3,500 FCA—lower levels are also being mentioned—and with spot milk trading so cheaply, sub-€4,000 cream looks readily available in the coming weeks. The last time cream traded around or below €4,000 for a prolonged period was in 2010, 2015, and 2020. It seems the 5-year cycle took one extra year to complete.

The key risk is timing. Milk intake is expected to seasonally increase for another 10–12 weeks and, under normal conditions, would only drop below current levels once summer begins. If that holds true, spot liquids trading near historic lows could persist for several more months.

There are no major industry shutdowns scheduled next week; capacity is available, and milk is finding its way from Western to Eastern Europe where some spare processing capacity still exists.

Commodity Production Heading for Record Levels

If low spot milk prices reflect high raw milk availability rather than weak demand, we assume that factories are running flat out. This implies commodity production operating at peak-month levels far earlier than usual—bringing forward stock-building and increasing the risk of overproduction.

Historically, average January butter production over the past five years sits around 190 kmt, versus peak levels near 225 kmt. February and March usually produce less butter than the peak months as well. Making the calculation, this suggests up to 60 kmt of additional butter production over the next three months compared to a “normal” year and last year.

For cheese, the gap between January and peak production is roughly 50 kmt per month, potentially pushing output more than 100 kmt higher over the next quarter. Powder production shows a similar pattern, with an additional 50–60 kmt per month, also implying over 100 kmt of extra volumes to be produced over the next months.

What to do with all that extra product?

Powders appear to have an outlet. Export demand at current price levels remains strong, allowing the EU to move most additional production. Cheese found relief towards the end of last year, but expanding those outlets further currently looks challenging. Finding outlet for 100km of cheese on the export market feels a bit too much, so we expect additional volume to cause a bit more price pressure in the EU.

Butter remains the most exposed. Competition from the US is intense: US cream prices are dropping toward €2,500, CME futures are under pressure, and the butter spot call has hit a new five-year low at $1.30. Notably, CME butter and non-fat spot prices are now trading remarkably close to one another.

Bullish Sentiment vs. Bearish Fundamentals

This leaves the market in an uncomfortable middle ground: reasonably bullish sentiment, set against clearly bearish fundamentals. Psychology, reluctance to sell near historic lows, and a toxic mix of global uncertainty provide bulls with arguments for upside.

If we were selling for a large cooperative, we would likely keep our foot firmly on the brake, hoping that those buyers who are getting nervous know to find their way towards us. If we were buying for an end user, we would continue locking in historically low price levels. It's easier to explain you bought a bit too much on low levels, than that you forgot to buy the bottom.

And while we are undeniably bearish on the dairy market, timing is the hardest thing to predict. History shows that true dairy commodity lows rarely arrive on forecasts. They usually occur when physical pressure hits warehouses—and balance sheets. Until then, sellers should not hesitate to benefit from uncertainty.

This Week’s Concluded Trades

From now on, we will inform the market once a week on the concluded trades we did during the week, taking out details that would expose sellers or buyers.

Butter

• Q1: NL / DE / BE €4,050
• March: NL / DE / BE €4,100
• April: NL / DE / BE €4,175
• Q4: NL / DE / BE €4,650

Powders

• Prompt: Polish SMP €2,030
• February: SMP MH Big Bags €1,970
• March: SMP MH 25kg Bags (export) €2,025
• April: French BMP €2,125
• April: SMP Low Heat €2,060