Foggy Weather in Dairyland

The last two trading days have been fairly uneventful. Think of it like Dutch winter weather: gray, cold, and every day seems the same. The fog turns everything a dull shade of gray, and we’re all just waiting for a glimpse of sunshine. Meanwhile, nobody seems to be too bothered by the Foot and Mouth Disease anymore; trading continues as if nothing ever happened. Some of our partners still manage to export German goods to certain destinations, and within the EU we’ve seen very few demands to exclude German products.

The sudden shift in sentiment is a bit puzzling, and the speed with which Germany is declaring the matter under control feels… well, let’s just say it’s unusually un-German. Then again, when there’s enough money on the line, governments and official agencies can apparently move at lightning speed. If the FMD situation stays this way, perhaps we’ve dodged a thunderstorm of misery. Let’s hope the market forecast soon calls for clearer skies.

Over the last few days, almost everything has traded sideways. Fat feels firm on the one hand (there are few offers, and cream remains steady to firm), yet buying appetite from our partners remains limited. End users seem to have returned to a week-by-week purchasing strategy, with most of their needs already locked in for January and February. We were hoping yesterday’s GDT might offer more insight into what lies ahead, but there’s little direction to be found in a slightly firmer GDT.

GDT: Firmer, but how does it impact the EU?
With a 1.4% increase, the GDT index moved up a bit. Two things jumped out immediately: AMF took a real hit (-7.8%), while WMP gained about 5%. Butter prices traded slightly higher, giving us a rather mixed picture of the fat market. It’s not the first time we’ve seen AMF priced below butter, but it still feels strange. NZ AMF is trading roughly €2,600 below EU AMF, a gap that’s too big to last for long.

On the SMP side, we saw modest gains of 2%. Some EU product is still available roughly €200 below EU product—yes, that sounds contradictory, but that’s how we’re seeing it. Most notable is the significant difference between Arla SMP (around €2,400 or lower) and Solarec SMP (about €2,550). It seems the FMD impact is most visible there.

Overall, the GDT shows a firmer undertone, but whether it’s bullish for the EU is still up for debate. Some partners see stronger butter signals and solid WMP demand as bullish for Europe. Others believe the higher NZ prices are driven by EU exportation hiccups, meaning fewer exports out of Europe in the coming months. Unsurprisingly, everyone picks the perspective that best fits their own market view. Our take? If the FMD issues truly get resolved, powders could see a lift. But cheese and butter might not have much upside given the steep discounts we’re still witnessing.

Liquids: Mixed signals
The fog in the market feels thickest in the spot liquids scene. We’re getting mixed signals from partners on all liquids:

• Raw milk in Germany is reportedly as low as 43 cents, while in France it’s around 64 cents.
• SMC hovers around €2,000, which seems to balance the low indications of €1,900 and the high ones at €2,150.
• Cream? Some partners report purchases at €8,500, others talk about sales at €8,900.

In addition, everyone’s interpreting data through their own lens. French headline numbers for milk production are around -4%, suggesting weaker collections. But high fat and protein contents might be offsetting that volume drop. Less water in the collection matters more to some than others. All in all, it’s not just market conditions creating the fog—it’s the participants, too. Let’s see if Wednesday brings any clarity.

Butter: Creeping Up Without Volume
Over the last couple of days, butter prices have inched higher. At the start of the week, we saw levels around €7,220, and now bids are creeping toward €7,300. Polish butter was initially a bit cheaper, though sellers raised their offers by day’s end. Buyers didn’t follow. After the GDT results came in, sellers bumped their prices again, creating wide spreads because buyers remain unenthusiastic. We see prices going up, but without any traded volumes.

We keep getting asked, “Are you bullish or bearish on butter?” Our answer remains the same: short term, prices could hold because stocks haven’t really built up. But when looking at the growing availability of third-country butter, the gap with the US and NZ (especially on AMF), and the high cost of carry at these prices in a backwardated market without any incentive to do so, we can’t help but be mid-term bearish. Does that mean we see butter dropping back down to the low €6,000s soon? Probably not. But give us a bid at €7,450 and we’ll find you 2,000+mt of butter; at €7,250, we wouldn’t even sell half that. That tells us there’s more willingness to sell at higher levels than buy at lower ones.

That said, with no oversupply of cream, we don’t see prices falling this week. We start the day with:

Bids

• 2 trucks NL/DE/BE fresh/frozen for Feb at €7,300
• 2 trucks fresh Polish sweet cream butter for week 5-6 at €7,220
• 6 trucks Polish Sweet or Lactic butter at €7,100 for March
• 6 trucks NL/DE/BE fresh/frozen for Q2 at €7,000

Offers

• 4 trucks NL/DE/BE butter in Feb at €7,375
• 1 truck fresh German butter for week 5 at €7,400
• 2 trucks Polish sweet cream butter for week 5-6 at €7,300
• 1 truck Irish Lactic (FFA max 0.36) for Feb at €7,350 FCA NL

Cheese: GDT points the way --> sideways
The cheese market continues to look more or less the same. Bids for Gouda for Jan/Feb/Mar sit around €4,200 while sellers say trades are possible between €4,250 and €4,350—though no firm offers are on the table. Mozzarella offers float between €4,050 and €4,100 for nearby deliveries, while bids hover just below €4,000. For Q2, we see Mozzarella bids around €4,000, with sellers aiming a bit higher at €4,200, and even €4,400 for Gouda.

All combined, the GDT results indicate the EU cheese market is heading sideways. At these price points, both buyers and sellers are content. Buyers see no reason to pay a Q2 premium over Q1, expecting rising milk supply to put more pressure on the market. Sellers, for their part, don’t feel compelled to offer lower forward prices when the outlook seems stable. We suspect cheese will remain highly spot-driven in the coming weeks.

At the moment, we have:

• A bid for 6 trucks Mozzarella in Q2 at €4,000, versus an offer at €4,180
• A bid for 6 trucks Gouda for Feb/Mar at €4,200, with a sales indication of €4,300

Powders: German Discounts?
Today, matching demand with supply was tricky—bids and offers were often €150-€200 apart. We did manage to broker some Belgium SMP at €2,505 FCA. We also picked up more demand for German product, albeit at a strong discount versus other origins. It looks like German producers aren’t under too much pressure to move product lower than around €2,450 for fresh Codex MH FCA DE. On GDT, German SMP sold at €2,400 for March, while Solarec SMP concluded at €2,560 for the same month.

Overall, the market seems a bit firmer than earlier this week, with enough demand left to be covered but a careful eye on German product in particular.

As for WMP, the short squeeze continues, with certain brands fetching a premium. However, some of our partners expect a correction given the FMD impact on German exports for other products.

Bids

• 400–500mt SWP exportable product; DE origin is fine as long as standard export docs can be provided (older product possible)
• 300mt German SMP Codex MH (no export docs) at €2,375 FCA DE, Feb ETS
• 200mt SMP Codex MH, fresh, West EU with standard docs, for Mar/Apr at €2,450 FCA
• 100mt WMP Regular, EU origin for Feb/Mar at €4,200 FCA

Offers

• 100–200mt German Codex MH fresh, Feb/Mar ETD, 25kgs at €2,460 FCA DE
• 40mt SWP German origin, 25kgs, Aug 2024 or fresher at €975 FCA NL
• 200–300mt SWP Eastern European origin at €1,080 FCA
• 200–300mt non-standardized SMP 36% “as is” at €2,525 DAP NL

Overall, let’s hope this gray spell breaks sooner rather than later—markets (and we) could really use some sunshine.