Bullish Until Christmas

Well, what do you know? Last week, the market turned a bit more bullish once again. But this time, for a change, it wasn't just butter hogging the spotlight—proteins decided to join the party too. We saw higher trades confirmed for SMP, WMP, and SWP. But of course, the million-euro question on the powder market remains: are we on the brink of a real breakout, or is this just another teaser? Meanwhile, the butter market continues to flaunt its tightness, with a record trade on our side for Polish Sweet Cream butter at a neat €8,700. The cheese market, on the other hand, remains as stubbornly steady as ever. But how long can those prices stay unmoved if both fat and protein markets are climbing? The market’s now in full Christmas production mode, and demand is reportedly stronger than expected—cue the scramble for spot market supplies. Butter buyers are starting to wonder: just how high can prices soar before they hit the ceiling? Judging by current sentiment, we’re not there yet.

Buyers, Milk Collections, and a Powder Market on the Edge

What’s fueling this renewed bullish run? It's those classic procrastinators—buyers who waited until the eleventh hour to lock in products, coupled with limited stock and milk collections that are lagging behind expectations. The powder market, for its part, has been carrying a decent stockpile and remains the least rattled for close by. Yet, with production tapering off and demand holding steady, even powders might not stay immune for much longer. And then there's cheese, the market that simply refuses to budge. So, what's keeping it so steady? Well, your guess is as good as ours, but a delayed, last-minute bullish shift in the coming weeks wouldn’t surprise us in the slightest.

Butter Market: Tight and Tighter Still

We've been calling for a tight butter market since May, and guess what? That prediction came to fruition last week with high prices for specific products. As previously mentioned, we brokered a load of Polish Sweet Cream butter at €8,700, and we hear that similar prices are being paid by the bakery industry for fresh deliveries for the next weeks. Even NL/DE/BE spot trades shot up to around €8,050, with some sweet cream butter fetching as much as €8,150. Last week we opened the week with prices roughly € 300 lower.

Demand for November and December remains strong, and with frozen stocks nearly nonexistent and cream prices sitting comfortably over €10,000, we expect more trades above €8,000. If butter buyers start conceding to these prices for fresh butter in the coming weeks, the cream could very well surge past €11,000 as there is more competition from buyers for the same product. And honestly, at this point, there's no telling where the price ceiling might land. Those who need supply in the next few weeks might want to act before the music stops.

Q1 of 2024: Don’t Expect a Replay of 2022

Looking ahead to Q1, we’re seeing significant discounts compared to the dizzying heights of November and December. But let's not get too comfortable; we’re already seeing prices for next year inching upward. We’ve brokered Q1 trades between €7,500 and €7,550, with some January trucks fetching €7,650. With strong industry demand and fewer sellers willing to play ball, prices may continue to climb. As cream prices inch up daily, expect November/December prices to break through €8,000, with Q1 potentially settling between €7,700 and €7,800.

We’ve been hearing the same refrain: "In Q1, prices will break!" Sure, we agree that Q1 will see prices dip below the current peak. Less demand for cream and a retail slowdown might loosen the market, but let’s not dream of a 2022-style freefall. Back then, the EU had robust milk intake and hefty stocks. This year? Not so much.

Yes, higher milk prices should drive collections up, but several factors are throwing cold water on that optimism. In regions like the Netherlands, Belgium, parts of Germany, France, and Denmark, blue tongue disease is hitting herds harder than anticipated, resulting in lower milk output. And with more farmers exiting the business, expecting a flood of milk anytime soon feels overly optimistic.

Butter Stocks: Scraping the Bottom of the Barrel

As for butter stocks, we're scraping the bottom of the EU reserves. It’ll take months of overproduction to replenish these levels, and even then, we’re likely to end up with a tight Q3 and Q4 next year. Only a surge in production during Q1 and Q2 could ease the pressure for Q3/Q4 2025, but that would require a significant shift away from cheese production. Given the steady cheese demand over the past year, we’re not holding our breath.

NL/DE/BE

Period	Bid	Size	Offer	Size
November	€7900	88	€8150	44
Week 49	€7900	88	€8250	66
Q1	€7500	132	€7575	132
Q2	€7000	132	€7200	66

Irish Butter

Period	Bid	Size	Offer	Size
November	€7650	44	€7900	88
December	€7400	44	€7750	110
Q1	€7300	132	€7850	132

Polish Sweet Cream Butter

Period	Bid	Size	Offer	Size
Nov-Dec	€8000	44	€8700	44
Q1	€7300	132	€7750	132

Cheese: Still Undervalued?

We've been saying it to anyone who will listen—cheese is undervalued. Mozzarella is being quoted at around €4,150 for Q1, with Edam and Gouda near €4,300, and Cheddar languishing below €5,000. Compare that with SMP futures over €2,700 and butter prices north of €7,500, and the cheese sector seems like the odd one out. Sure, demand may not be what it was, but stocks are still young, and there’s no sign of substantial stockpiling.

Low stocks and low valorization should logically result in reduced production. Reduced production coupled with steady demand? Usually, that means higher prices. Buyers are still holding out for lower prices, but we've seen our sellers raise offers for Q1, closing the backwardation gap. That’s a healthier sign, in our view.

The biggest wildcard? The behavior of buyers. Much like butter buyers, cheese buyers tend to bail as soon as prices show an upward trend, hoping for a market cooldown. That strategy may have worked while cheese valorization was ahead of butter and SMP, but with those roles reversing, they might find themselves caught off guard. We’re not expecting a butter-level tightness in cheese, but even a minor supply-demand shift could have a notable impact.

Gouda

Period	Bid	Size	Offer	Size
Nov-Dec	€4300	44	€4600	44
Q1	€4250	132	€4500	132
Q2	€4100	132	€4500	132

Mozzarella

Period	Bid	Size	Offer	Size
November	€4150	44	€4300	44
Nov-Dec	€4150	44	€4300	88
Q1	€4150	132	€4350	88

Powders: On the Verge of a Breakout?

The powder market has been gaining momentum over the past couple of weeks. Those sweet spot offers on SMP, FCMP, and SWP? Gone, snapped up in the blink of an eye. SMP futures have climbed, and the bullish butter sentiment has sellers pulling back while buyers are coming back to the table.

Yet, skepticism abounds. With solid returns on butter and SMP, there’s an expectation that more SMP production is around the corner. Drying towers have reportedly been working overtime. One of our partners put it bluntly: "We’ve seen fake breakouts several times over the past 20 months—what makes this one any different?"

We’re starting the week with sellers for...

Product	Origin	Volume	Period	Price	Incoterm
FCMP	IRL	88	Nov	4300	FCA NL
SWP	Spanish	150	Nov-Dec	950	FCA SP
D40	Spanish	200	Dec-March	1025	FCA SP
Codex BigBags	EU	200	November	2450	FCA FR
SMP Codex	Belgium	100	November	2450	FCA NL
FCMP Instant 2024 production	EU	100	November	4100	DAP NL

We would have the following bids

Product	Origin	Volume	Period	Price	Incoterm
FCMP BigBags	EU	96	Jan	4220	FCA NL
SMP Nonstand	EU15	100	Oct	2450	DAP NL
SMP BC Spec	EU	300	Q1	2550	FCA
SMP Codex for ONIL	Limelco	100	November	2430	FCA

In Conclusion

So, here we are—fat prices flying high, protein markets rallying, and cheese wondering if it’s next in line. Butter buyers might want to lock in prices before they’re left chasing a runaway train. As for powders, the breakout feels closer, but we've been burned by false starts before. Q1 butter and cheese. prices? Sure, prices might dip, but anyone waiting for a 2022-style crash might end up very disappointed. Because as we’ve learned (and keep learning the hard way), this market doesn’t like to play by the same rules twice.