Ceiling and Floors, Trading in Tunnels

The dairy market has been showing some volatility over the past weeks, but most commodities remain within relatively tight trading ranges. We say "relatively" because, while SMP prices have been stuck in a modest €250 range, butter has been swinging through a €800-wide tunnel this year. Cheese, for its part, has been bouncing within a €350 range. At the moment, butter and cheese are trading toward the upper end of their price bands, while SMP prices are hovering near the floor.

Milk production in Europe is generally in line with last year, though some countries are reporting significant deficits while others show strong growth. The 2025 forecast appears steady—well, as steady as anything can be in this business—but with lingering uncertainty over bluetongue, no one is willing to bet on major milk expansion. All this uncertainty, combined with the painful lessons of 2024, has created a market where buyers prefer to overpay to secure volume, and sellers are cautiously forecasting and only selling a few months forward.

This setup is primed for a bullish market. Despite being pre-flush season, there’s no excess product struggling to find a home. Meanwhile, the push to de-risk 2025 is bringing more sellers to the market. As we’ve said before: while the supply-demand balance might appear stable to slightly bearish, the buyer-seller balance is decidedly bullish. As said before in other updates, it doesn't seem to be a lack of product, but a lack of sellers. That balance starts to shift as butter approaches €7,500 and cheese nears €4,500—suddenly, sellers are plentiful, and buyers start stepping back. For SMP, the turning point is below €2,400, where buyers appear and sellers step back.

A real disruptive force would be needed to break these rangebound tunnels. On the supply side, bluetongue and FMD are the main potential disruptors. On the demand side, international trade wars—and, again, FMD—would have the biggest impact on the EU market. Domestic consumption appears solid, unlikely to falter even if economic headwinds pick up. The real risk to demand lies in a potential drop in exports, which could put some pressure on the market.

GDT: A Decent Benchmark

Today’s action starts with the GDT, which has been a fairly reliable short-term trend indicator in recent weeks. We expect EU butter prices to firm up further. After averaging €7,450, we wouldn’t be surprised to see prices settle around €7,550—a modest 2% increase. However, we’re more sceptical about NZ fat prices. Multiple sources confirm that the relatively high GDT prices don’t reflect actual transaction prices outside the tender. Futures also point towards a correction. While the headline number for butter might still print lower, AMF prices should find some support, given their significant discount to NZ butter although future prices dont really indicate a swift rebound is expected.

For WMP, we anticipate a slight downward correction. Both EU and NZ origins are expected to soften, but not dramatically. As for SMP, there’s little bullish momentum from a European perspective. Based on what we see from EU suppliers, we expect prices to range between €2,350 and €2,400 for Arla, while Solarec should trade slightly below recent tender prices. NZ prices are likely to see a mild correction as well, but nothing extreme.

Last time, GDT’s Mozzarella prices caught us off guard with a big jump to the €4,275 range, setting the tone for higher cheese prices. The EU cheese market remains firm, and we expect prices to hold roughly in line with the last tender, perhaps with a slight increase. Overall, this tender likely won’t be market-moving—at best, we might see a minor (-1%) shift.

Liquids: Setting the Tone

This week, liquids are expected to drive the mood. Early indications suggest continued pressure on SMC, with prices hovering just above €2,000 or possibly dipping below, thanks to weak SMP demand. Cream prices appear to be opening slightly lower than last week’s highs, with early indications putting German cream at €8,800-€8,900 FCA for next week. Some do think a small correction might be short-lived as Easter and warmer weather might boost prices back up again.  Eastern EU cream prices will likely be set by midweek. Raw milk production is creeping up due to favorable weather, and expectations are that prices will slip below 50 cents again. Given these signals, a modest correction in commodity prices wouldn’t be surprising.

Butter: Ceiling Reached?

The butter market has rallied, but as cream stabilizes, so has butter. At €7,500, + selling interest is growing while buying interest is fading. For specific brands and short-term needs, some buyers are willing to stretch a bit higher, but for Q2 and beyond, buyers seem in no rush to lock in at these elevated levels. Sellers, on the other hand, appear comfortable holding their offers firm around €7,500 with no fysical pressure yet pushing their sales towards lower prices.

If cream prices open a bit lower, we could see some easing in butter prices. But for those expecting a full retracement to €7,250—let’s not get ahead of ourselves. A dip toward €7,350-€7,400 might attract some buying support again.

Cheese: Ceiling in Sight

While butter prices may have hit their ceiling, cheese is not far behind. Some claim to see more supply trickling in, but when pressed to point out where, their responses tend to get a bit vague. From our perspective, buyers are still hunting for spot loads of Gouda and Mozzarella—only to be met with a small group of sellers pushing for even higher prices. Unless some forgotten cheese stash suddenly materializes, prices for nearby delivery should remain firm. For Q2 and Q3, cheese prices could ease in tandem with butter.

Powders: Floor in Sight

The powder market appears to have found a solid floor, with no major cracks forming just yet. Between €2,350 and €2,400, there are plenty of buyers for a wide range of products, including some older generic loads. Sellers, meanwhile, aren’t in a rush to offload stock. The most bearish signal for SMP prices right now is SMC pricing—if it drops well below €2,000 in the coming weeks, the €2,350 floor won’t hold for long.

For now, we remain in a market defined by cautious optimism, tight trading ranges, and a few well-placed bets on what might (or might not) go wrong. Stay sharp out there.