Patient Purchasers Put Pressure on Prices

The past two trading days have seen us shuttling back and forth to Brussels, meeting with key players from the dairy industry. Our rendezvous took place in the comic book museum—because, let’s face it, where else would serious dairy discussions between unparalleled characters naturally unfold? Between the inspiring backdrops of Tintin and friends, we enjoyed lively conversations covering life, football, world issues, and, in a bold twist, our decision to spread the flu. Oh, and there was some market talk in there, too—I wouldn’t want to forget that part. Tuesday brought insightful presentations recapping recent developments and offering projections for the months ahead. It’s always refreshing to hear the varied perspectives in a room full of people who live and breathe dairy—quite literally, in some cases. Representatives from ZMB, Gira, and speakers from Spain, Germany, and the UK painted a picture of a reasonably balanced market. Their analysis highlighted how doubts about supply are effectively neutralized by equally significant doubts about demand. This precarious equilibrium explains the relatively flat market we’ve observed so far this year—riveting, isn’t it? With all that wisdom packed into our heads, we braced ourselves for a relaxed drive home, ready to savor the simplicity of a smooth journey when, suddenly... We might have sensed it lingering in the air for days, but yesterday afternoon it became undeniable. The phones started ringing, signaling a shift. Cheaper cream offers began cascading into the market, triggering a domino effect that sent butter prices plummeting—nearly €200 within an hour. The catalyst? Cream prices dropping as low as €8,200 FCA in Eastern Europe. While such low prices weren’t abundant, multiple sources reported cream offers at €8,400 DAP from German producers. And as we’ve noted in earlier updates, when prices are high, sellers eagerly flood the market with volume. But the moment prices dip? Buyers vanish faster than the FMD panic we all just lived through. While the impact on cheese and powders wasn’t as dramatic, we saw similar reactions. By the end of the day, WMP and SMP offers surged, only for buyers to disappear just as abruptly as they had in the butter market. The lingering question now is: what will bring them back? Many buyers seemed content when prices were firming, but now that their expectations of lower prices are materializing, they appear even more comfortable sitting on the sidelines. The patience displayed by these purchasing managers is exerting downward pressure on the market.

One key takeaway from our discussions over the past two days is this: while producers aren’t thrilled about selling below cost price, they’re equally reluctant to store goods in the hope of a rebound if their cost base drops.

The big question remains: how long can buyers hold off, and how quickly will pressure build on the sales side? And, perhaps most importantly, will traders finally step up and take the plunge in this market, or will they continue to hover on the sidelines, waiting for an even clearer picture to emerge?

Butter: Bye Bye Buyers

Where we saw plenty of buying interest just last week, the tide turned swiftly in the past 24 hours. As falling cream prices lowered the production costs for fresh butter, buyers who had been actively testing the market seemed to get all the feedback they needed. With only a few lower trades, the buyers' market emptied out, only to re-emerge at significantly lower levels. One candid buyer even wrote us:

"Prices have been trading unnaturally high. They should drop back to somewhere between €6,500 and €7,000 to better reflect the market we see. And let’s be honest—€6,500 for butter in Q1 isn’t cheap butter; it’s still freaking expensive."

Some of our partners speculate that the recent sell-off in cream began right after the first round of February retail negotiations wrapped up. If our information is accurate, the settled prices are likely to land between €8,000 and €8,200. While some producers may view this as positive news, it’s worth considering the other side of the coin—these high retail prices are unlikely to spark a surge in demand anytime soon.

During the presentations at Eucolait, it was highlighted that we’re now at the highest recorded retail price for 250 grams of butter. In a price-sensitive market like German retail, that milestone is unlikely to pass without consequences. Price elasticity, after all, tends to respond rather predictably, even if optimism among producers occasionally clouds the broader picture.

By the end of the day, the sharp decline in prices began to slow, as producers started pushing back. Still, the cheapest producer offers we heard about dropped from €7,300 last week to €7,100 this week. Meanwhile, in Belgium, sellers adjusted from €7,500 last Friday to €7,250 by yesterday evening. Irish producers, on the other hand, seem perfectly happy to wait it out, confident that anything coming down this quickly might just rebound just as fast. And who knows? They might be right.

We expect to see the following market opening.

• an offer for 6 loads of sweet cream butter, fresh. frozen at € 7150 for Poland for February
• an offer for 10 loads sweet crema butter frehs/frozen at € 7150 DAP NL for April/May
• an offer for 6 loads of NL./DE/BE fresh/frozen butter for March/April at € 7200
• an offer for 6 loads of NL/DE/BE fresh/frozen butter for Q2 at € 7150
• an offer for 6 loads of NL?DE/BE fresh/frozen butter for Q3 at € 7200
• an offer for 6 loads of Irish fresh/frozen butter for Q3 at € 7175

We have a buyer for

• 4 loads NL/DE/BE fresh frozen butter February at € 7100
• 8 loads of Polish butter at € 6900 for March
• 4 loads of Irish lactic butter, FFA below 0.33 fca Nl at € 7000
• 6 loads of NL/DE/BE fresh/frozen butter for Q2 at € 6900

Cheese: Low Stocks & Less Buyers

The cheese market might not be as visible or transparent as the butter and SMP markets, but it’s no less critical to keep an eye on. Without active and visible futures markets, the flow of information between buyers and sellers is more fragmented, making the cheese market less uniform than its counterparts. However, after speaking with our cheese partners at Eucolait, a general consensus has emerged.

Most agree that availability for nearby deliveries is low, and those in urgent need seem willing to pay a modest premium. That said, forward demand for cheese remains somewhat subdued. As one trader aptly put it:

"Most of the Q1 purchases seem to be wrapped up, and buyers are quite comfortable holding out for better prices. With butter prices dropping, we don’t expect cheese buyers to return for new volumes at a market premium in the coming weeks."

Interestingly, the overall sentiment about cheese at Eucolait wasn’t particularly bearish. The biggest challenge for some partners lay not in exiting existing export deals but in securing new contracts. And it’s not just the buyers hesitating to commit to fresh offers; sellers also appear less inclined to lock in new volumes. The lingering uncertainty surrounding the impact of FMD has left both sides feeling uneasy, as the situation is still far from crystal clear.

We expect to start the market with

• an offer for 6 loads of Gouda 48 for February and March at € 4325
• an offer for 6 loads of Mozzarella for February and March t € 4070
• an offer for 6 loads of Mozzarella for Q2 at € 4125

Buyers stepped away, and we start with one remaining bid for

• 6 loads of Mozzarella in Q2 at € 4000 for NL/DE/BE origin

Powders: Our Bearish Bulls

Speaking with our powder partners is always a highlight—these are the people who bring the most global perspective to the dairy market. It’s no surprise that many of them were bullish at the start of the year. The signs all seemed to align, and we even wrote optimistically about potentially breaking out of the long-term oscillation cycle. But then...

The tables turned. A confluence of shifting factors has brought many of our bullish friends back to a more cautious—if not bearish—outlook. In the EU, internal consumption continues to lag behind expectations. Exports have taken a hit, partly due to FMD, while increased competition from non-traditional market suppliers has quietly siphoned off more demand than many anticipated.

The forecasts shared at Eucolait didn’t exactly reignite bullish sentiment either. The EU is expected to face ongoing competition from New Zealand to China—and, ironically, from China itself. Increasing volumes of Chinese product, from WMP to SMP, have entered the market. With internal demand in China stagnant, even their lower milk production has done little to increase import demand.

Some partners went as far as to predict that China won’t reclaim its position as the world’s biggest buyer on the export market in the coming years. It’s a sobering thought for a market that once relied on Chinese demand as a key growth driver.

We start the day with the following offers

• 250mt of Fresh Tirlan Codex at € 2475 FCA IE for Feb/March
• 400mt of max 6 month old Limelco Codex at € 2450 FCA BE for Feb/March
• 200mt of Fresh Solarec WMP at € 4350 FCA BE for Feb/March
• 100mt of 7-8 month old Eurial BigBags for Prompt collection at € 2400 FCA NL
• 23mt of Mlekovita SMP at € 2520 for February
• 48mt of non standerdized 37% as is fca nl € 2500