Foot-and-Mouth Disease

We typically inject some light-hearted commentary and speculative analysis into our reports, but the severity of the current situation surrounding the isolated FMD outbreak in Germany warrants a more serious approach. Over the last three days, we have been in discussions with our partners to understand the potential impacts of this incident, which, at this point, remains isolated. While the immediate effects on the dairy sector in the EU are difficult to quantify, we are focusing on the measures being taken and the effects we see unfolding. As always, if we have missed any crucial details, we encourage your feedback to ensure we’re providing the most accurate and timely information to our partners.

Current Situation

As of the time of writing, there has been an isolated case of FMD in Brandenburg, where three water buffalo have died. Antibodies have been detected in other members of the herd, suggesting that the disease could have been circulating since Christmas. Testing within a 10km radius of the affected area has not identified further cases, which, while positive, still warrants caution as FMD is highly contagious. The disease is known to "travel" and, as such, further spread cannot be ruled out yet.

Market Impact

The dairy sector, particularly in Germany, is facing immediate challenges. German dairy products cannot be certified by veterinarians as FMD-free for export, as they cannot guarantee that no outbreak has occurred within the last 90 days (some sources indicate up to one year). Consequently, exports of powder, butter, and cheese have been put on hold, while traders are attempting to redirect German goods intended for export to other EU markets. In the cheese sector, this is most notable for Gouda, Mozzarella, and Edam, with some efforts to switch these products to Dutch sources.

However, while German butter has been facing less export cancellation as there is little put on export (due to already high price levels), the same cannot be said for other dairy products like German SMP, which is seeing more competition from alternative sources. That being said, the overall supply and demand balance in the EU dairy market has not drastically shifted at this stage.

There are some emerging supply issues within the EU. German butter has been blocked by some customers in France, and German cream is facing limited outlets in EU factories that typically absorb it. Similarly, German SMC and raw milk prices are under slight pressure. However, no significant disruptions are being reported at this time, with no market "dumping" or significant price volatility. Producers and traders are simply redirecting goods to destinations that have no issue yet with German-origin milk, cream or product. The logistic teams are making over hours.

If the outbreak remains contained to Brandenburg, the situation should be manageable in the short term, with minimal disruptions to overall supply and demand. However, if restrictions are lifted and producers who have experienced sales slowdowns need to catch up on production, there may be some tightening in the market later in the season.

Larger Outbreaks: Speculative Scenarios

If the situation were to escalate into a larger, cross-border outbreak, the short-term impact could be bearish, with potential halts in EU exports. Longer-term, however, reduced milk production could turn out to be bullish for the market. Fortunately, such scenarios remain speculative at this point, and we hope they stay in the realm of theory.

Liquid Market: Stable for Now

So far, the impact on the liquid market has been relatively minimal. The market in the Netherlands, Poland, and France remains largely unchanged, with cream prices ranging between €8500 and €8600 (German product is priced as low as €8400) and SMC between €2100 and €2200. Despite some discounting on German products, there are no significant disruptions or shifts in liquid prices at this stage.

Butter Market: Affected by Uncertainty

The butter market remains subdued, with some fluctuation in trade prices. For instance, older Polish materials have been traded at €7000, Solarec at €7250, and fresh German butter at €7400 (for quick collection). However, the market remains relatively quiet, as both producers and buyers wait to assess the full impact of the FMD outbreak. The strategy appears to be "wait and see," with a cautious approach prevailing on both sides of the market.

So with a very inactive market we expect to start the days as followed

• offer for 4 loads frozen Polish Sweet Cream at € 7100 FCA PL for Jan
• offer for 4 looad NL/DE/BE for Feb/march at € 7325
• offer for 4 loads of NL/DE?BE for Jan at € 7400
• offer for 2 loads Irish at € 7375 FCA NL

we expect to have the following bids

• bid for 2 trucks NL/DE/BE for Jan at € 7300
• bid for 6 trucks NL/DE/BE for Q1 at € 7300
• bid for 2 trucks Polish Sweet Cream at € 6750
• bid for 8 trucks Irish Lacitc for Feb/March at € 6800

Cheese Market: Substitution and Demand Uncertainty

In the cheese sector, the main trend is the substitution of German products with Dutch alternatives. While some traders are attempting to swap German Gouda for Dutch, overall demand is uncertain. Buyers are hesitant, with asking prices for Mozzarella near €4000 and Gouda around €4200, which is far above the prices at which sellers are willing to offer (€4250 and €4500).

SMP Market: Pressure on German Products

In the SMP market, there is mixed activity, with increased interest from price-sensitive buyers. Non-standardized SMP and Codex MH-grade powder are seeing offers at €2520 FCA NL and around €2500 for February/March collection, with some Irish SMP slightly lower at €2460 FCA IE for March. Export demand from Asia is consistent, though buyers are requesting veterinary certifications to confirm that the products are FMD-free, adding further pressure on German-origin SMP.

WMP Market: Stable, but Excluding German Products

Whole Milk Powder (WMP) prices remain relatively tight, with premium prices for specific Belgian brands due to limited availability. EU WMP for March collection is priced at €4375 DAP NL, while Belgian Instant WMP (26% fat) is offered at €4300 FCA NL. However, demand from North Africa and Southeast Asia is strong, though German-origin products are being excluded from purchasing considerations due to FMD concerns.

Bids and Offers

Bids:

• 100mt West EU SMP Codex MH: USD 2575 CFR SEA (March 2025 ETD)
• 500mt EU SMP (Aged): USD 2500 CFR Chittagong

Offers:

• Belgium SMP Codex MH: €2500 FCA BE (Feb/March collection)
• Irish SMP Codex MH: €2460 FCA IE (March collection)
• UK Non-standardized SMP: €2520 FCA NL (Oct 2024 production)
• EU WMP: €4375 DAP NL (March collection)
• Belgian Instant WMP: €4300 FCA NL (Sept 2024 production)

Outlook and Considerations

While the immediate impacts of the MFD outbreak in Germany appear manageable, the situation remains fluid, and further developments could lead to greater market volatility. The potential for extended restrictions or a broader outbreak could significantly affect German dairy exports and supply chains across Europe. As always, we and our partners will continue to monitor developments closely, particularly with regard to veterinary certification requirements and shifting demand patterns.

The next few weeks will be critical in determining whether the situation remains contained or if larger disruptions unfold. In either case, we will keep you informed with the most relevant updates as they arise.