Bullish Butter Boom!

This week has witnessed a remarkable surge in dairy prices, with butter taking centre stage yet again. Prices have surged by nearly €600 this week and almost €1000 in the last month. The inherent volatility in the butter market has surpassed the expectations of even the most optimistic partners. And because we see most purchases being secured for the next five months, this appears more as a fundamental rally than a short squeeze, with no apparent ceiling in sight, or is there one?

Never has a weekly update of our been more wrong than that of this Monday. With the Guldfood around the corner, we expected the market to remain quiet as we felt most of our partners wanted to know what the sentiment would be like and what their partners would expect of the market. But it seems that with prices getting more bullish, fewer and fewer partners are willing to wait and therefore all the expected action of next week, seems to come already this week. Or at least for butter. It seems the butter market is trying to get the other commodities up, although we do not see the same panic among cheese and SMP buyers as we have seen in the last few days among butter buyers. But there is nothing as infectious as a bullish sentiment, and with Gulfood around the corner, the risk of spreading the bullish virus is great. And with all the activity going over butter today we have not updates on our cheese and SMP market. Both feel a bit more bullish, but major changes compared to where the cheese market is trading at.

Why the bears were wrong?

Looking at the rally from a distance and debating the rally with our partners the rally seems sentiment-driven. We still have plenty of partners looking at the milk intake in the EU and they forecast a strong milkpeak that should give pressure on the producers. But looking closer we doubt the effects of more milk will be felt before we see the month of April. And up until that moment, we continue to see buyers chasing butter that just doesn't seem to be there.

Another argument for lower prices is the relatively lower cream price. With prices still around € 6300 we should expect butter production to be between € 5250 and € 5500. But the production of retail butter gives a much better return and therefore it seems the production of block butter has been at a much lower rate already for a few months now compared to previous years.

Looking at the EU balance sheet it seems the forecast presented on the Eucolait has been telling the right story. Less product has been produced last year, more product has been exported and consumption has held up ok. This week we still hear the EU is able to export butter (even at these prices) and more butter is leaving the EU. And where in previous months the market in Q1 was filled up with cheap butter from the east of the EU and cheap butter from Ireland, now both regions haven't sold that much volumes well below the market. We would still expect the Irish to come to the market. But their wait-and-hold strategy has paid off well, and we expect them to play it a bit longer.

€ 5000,- was a floor, will € 6000,- be a ceiling?

Only 4 weeks ago we hit the floor at € 5000,- for butter. We bounced off it (as if it was a trampoline) and now we are reaching the € 6000,- level. On EEX futures we have already seen higher trades for H2 and some trades at € 6000 for Q2. We expect this price level it to act as a psychological ceiling that will be hard to breach. Although we did already see NL/DE/BE butter trade for Q2 at € 6000,-. Next week is going to be crucial. If the Gulfood sentiment won't cool off a bullish GDT and higher cream prices can take the butter price up another € 500,- easily. Or will everyone realize that this week's panic has been for nothing and will prices slowly ease back down?

An exciting week lies ahead, and we look forward to hearing the response of our partners when we get in touch with them. For those travelling, we wish you all the best of luck. Linda den Ruyter from the Get Fair Dairy team is travelling to Dubai to meet with all of our future partners. If you get a chance to meet her and give her feedback on our business model, our updates and our services, feel free to grab her by the arm and discuss. We wish you all safe travels, and enjoy the sunshine!