Bulls And Bears Trade Hand in Hand

Last week, the dairy market took an interesting turn. For the past 4-5 weeks, we’ve seen butter prices climb steadily, cheese move sideways, and powders stay, well... rather dull. But now, it looks like all the gears are shifting. The powder market is trending significantly higher, with a strong outlook for 2025. Cheese prices for next year are aligning with this year’s figures, and butter prices are showing some pretty dramatic spreads. While we're still bullish on butter for the next four weeks, what happens after Christmas is starting to look a bit foggy. We expect the dynamics to shift, making these last few trading weeks of 2024 far more exciting than we initially thought.

Kicking off this week, we anticipate a somewhat slow start, especially in the powders sector, as many players await the results of the Global Dairy Trade (GDT) auction. Given recent strong gains, a pause wouldn’t surprise us. The EU is scooping up some volumes thanks to its discount advantage, and remember, nothing rises in a straight line. A small correction might give everyone a chance to catch their breath. As for fats, we're dialing down our bullishness a bit. The same factors apply: with more competition from American exports, the butter market may see a minor correction. But don't expect anything too thrilling just yet. Overall, we predict a slightly bearish to flat GDT outcome.

Liquids: High Spot Prices, Lower Forward Prices

Last week saw record highs in the spot market for liquids. Cream prices in Western Europe shot up to €11,000, while spot milk prices in France even touched 80 cents. This confirms a tight market with solid spot demand but limited milk supply. Our partners are also noticing what we’ve been observing for weeks: milk output in key regions isn't bouncing back as fast as it used to, despite higher prices. Regions affected by bluetongue are taking longer than expected to recover, squeezing the market further. Many buyers were caught waiting for lower prices, adding pressure to an already imbalanced spot market.

However, after December 15th, we foresee a shift. Seasonal milk intake is growing while spot demand is waning, which tilts the supply-demand balance. Raw milk prices are expected to drop below 60 cents, and cream prices should hover around €9,000 post-Christmas. Those active in the trade for long-term liquid contracts see more willingness with producers to forward sell milk at lower prices. Its seems some are anticipating more milk over the next months. The UK is already seeing a milk intake surge, thanks to favorable weather and a bluetongue-free status. Continental Europe might follow suit once the disease's impact fades, though we're less optimistic about increased output in the Netherlands.

Butter: High Spot Prices, Steeply Backwardated Curve

Butter prices last week hit new highs in the first half of the week, mainly for contracts for deliveries in November and the first week of December. However, the second half of the week saw the market cooling down a bit. We see that prices in December show a strong difference between collection weeks. Butter collected before the 7th of December is, in some cases, priced a whopping €500 higher than butter for the second half of December. We also see a significant discrepancy between buyers who need fresh butter over the next three weeks (and are willing to pay a premium) versus those who are focused on Q1 needs.

The looser spot market for liquids is expected to ease the spot market for butter as well. More milk means more cream, which allows producers to ramp up butter production. The increased supply coincides with the traditionally weaker demand period in Q1, leading to a supply boost while demand decreases. In a typical year, we would expect a short correction in January, followed by a quick rebound. However, this year, the market faces challenges that could result in a steeper drop—and a potentially bigger bounce back. The big question is: "Who will stock and finance the overproduction from Q1 and Q2?"

If the market is in contango, producers will forward sell and keep the stock, or traders will use cash-and-carry strategies to move product from periods of overproduction to times of higher consumption. However, at the moment, the forward curve for butter is heavily backwardated, with a nearly €750 per metric ton difference between January and June prices. As long as the market remains so strongly backwardated, it will be challenging to find solid support for butter prices at current levels. Currently, high prices in November and early December are propping up Q1, but that window is shrinking. In the coming weeks, pressure from lower prices in Q2 will start to drag down Q1. How quickly the market finds support will depend entirely on buyers’ actions for the rest of the year. Their risk? If they don’t pay others to stock product for later, there’s a significant risk that no one will. And if that happens, the market for Q3 and Q4 of 2025 might become much tighter than it has been this year.

We Expect to have sellers for

Product	Origin	Volume	Period	Price	Incoterm
Lactic Unsalted Fresh/Frozen	Irish	88	December	€ 7775	FCA IE
Sweet Cream Unsalted Frozen	Portugues	44	Nov-Dec	€ 7975	FCA PT
Sweet Cream Unsalted Frozen	Irish	44	Dec	€ 8250	FCA NL
Lactic Unsalted Fresh/Frozen	Arla DK	88	December	€ 8000	FCA NL
Lactic Unsalted Fresh/Frozen	NL/DE/BE	66	December	€ 7925	FCA NL
Lactic Unsalted Fresh/Frozen	NL/DE/BE	132	Q1	€ 7500	DAP NL

We Expect to have Buyers for

Product	Origin	Volume	Period	Price	Incoterm
Lactic Unsalted Fresh/Frozen	Irish	88	December	€ 7500	FCA IE
Sweet Cream Unsalted Frozen	Portugues	44	Nov-Dec	€ 7400	FCA PT
Sweet Cream Unsalted Frozen	Irish	44	Dec	€ 7800	FCA NL
Lactic Unsalted Fresh/Frozen	Arla DK	66	Q1	€ 7250	FCA NL
Lactic Unsalted Fresh/Frozen	NL/DE/BE	66	December	€ 7500	FCA NL
Lactic Unsalted Fresh/Frozen	NL/DE/BE	132	Q1	€ 7300	DAP NL

Cheese: Q4 softening, Q1 Strengthening (a bit)

The cheese market is showing a slightly different pattern than the butter market. While prices in Q4 have remained relatively firm over the last weeks, it was Q1 that showed no buying interest at all and price indication showed a huge backwardation. Even when butter prices were trading firmer and firmer, the cheese market did not move. Up until last week. It seems most partners have covered their needs for November and December and buyers have shifted their focus to the first quarter of next year. With one eye on the fat market and the other on the protein market buyers start to realize that finding free milk to produce sufficient cheese might get difficult. We already hear production of Gouda and Edam is expected to slow down a bit if November/December, fueling the need with buyers to cover.

With the demand for Q4 fading and the offers for Q1 drying up the markets that were once heavily backwardated started to form a more flatter curve. Still, it seems the market is pricing in a bit more milk due to higher payout prices, but the gap as shrunken significantly. Moreover, on these relatively low levels, and with a stronger dollar, the EU started to become more and more appealing for the export markets again. So overall the outlook for the cheese market is recovering a bit, although for us it remains one of the tougher markets to get a grip on.

We Expect to have sellers for

Product	Origin	Volume	Period	Price	Incoterm
Gouda 48 Slicing	NL/DE	88	December	€ 4550	FCA NL/DE
Mozzarella 40%	NL/DE/BE/DK	88	Nov-Dec	€ 4250	FCA NL/DE/BE
Cheddar	UK	44	Dec	€ 4850	FCA UK
Gouda 48 Slicing	NL/DE	132	Q1	€ 4550	FCA NL/DE
Mozzarella 40%	NL/DE/BE/DK	66	Q1	€ 4375	FCA NL

We Expect to have Buyers for

Product	Origin	Volume	Period	Price	Incoterm
Gouda 48 Slicing	NL/DE	88	December	€ 4400	FCA NL/DE
Mozzarella 40%	NL/DE/BE/DK	88	Nov-Dec	€ 4100	FCA NL/DE/BE
Cheddar	UK	44	Dec	€ 4600	DAP NL
Gouda 48 Slicing	NL/DE	132	Q1	€ 4300	FCA NL/DE
Mozzarella 40%	NL/DE/BE/DK	66	Q1	€ 4200	FCA NL

Powders: Poised for a Correction?

The powder market has enjoyed a nice upward run, fueled by a strong dollar and a weaker euro, driving export sales. However, unlike butter, this market doesn't just shoot up in a straight line. Last week, we saw more sellers entering the fray, eager to lock in profits at these elevated levels.

If the upcoming GDT auction signals a slowdown, a correction wouldn't surprise us. Many buyers seem content with their Q4 and early Q1 coverage and may be willing to wait it out. Additionally, there are reports that the Soummam tender volumes were secured outside the EU, mostly by Belarus at much more competitive prices. With the ONIL tender approaching, the EU may need to sharpen its prices to secure orders.

Product	Origin	Volume	Period	Price	Incoterm
Skimmed Milk Powder, BB	FR	100	Nov	€ 2500	FCA FR
SWP	Spanish	150	Nov-Dec	€ 975	FCA SP
D40	Spanish	200	Dec-March	€ 1025	FCA SP
Skimmed Milk Powder, Fresh	Solarec	300	Q1	€ 2800	FCA BE
SWP Monki	Polish	100	November	€ 1025	FCA NL
Skimmed Milk Powder 36%	EU	100	November	€ 2650	DAP NL

We would have the following bids

Product	Origin	Volume	Period	Price	Incoterm
FCMP BigBags	EU	96	January	€ 4220	FCA NL
Skimmed Milk Powder n 36%	EU15	44	November	€ 2550	DAP NL
SMP BC Spec	EU	300	Q1	€ 2650	DAP BE
FCMP	IRL	24	December	€ 4300	FCA NL/BE

Final Thoughts

In a nutshell, the dairy markets are in for a dynamic few weeks as we approach the end of the year. While butter remains the star for now, all eyes are on whether buyers will step up to support the forward market—or if the heavy backwardation will continue to weigh down prices. Keep an eye on those GDT results, and don’t be too surprised if we see a few twists before 2024 wraps up!