Butter drop below € 4000 in 2027, smp breaks above € 3500

Earlier this week we spoke about our expectation that butter prices will start trading below protein prices. That gap still seems quite wide, but market activity is quickly making it smaller. Butter prices are stepping down, with a trade this week at € 3950 for Q1 collection and offers for this year dropping to € 3850, while bids sit at € 3700. All the while, SMP prices are slowly grinding higher, with trades for premium factories already reported at € 3500 for codex. And while the gap in the EU is shrinking, the gap in the US, where NFDM is already more expensive than butter, is getting wider every day.

We continue to see more support for our analysis. Looking at the spot market for liquids, we see SMC prices trading back up after sitting a bit lower last week, with prices just under and a bit over € 3000, and whey concentrate prices are back up to € 1600. Even raw milk prices are trading steady. The only liquid that struggles... is cream. Cream prices are back below € 4600 FCA Western EU, up to € 4800 FCA Eastern Europe. Demand is slow, and judging by the conversations yesterday, we would expect the last two days of this week to push prices a bit lower again.

Butter: Looking for buyers

The lower cream prices are partly a result of the lack of demand for butter in Q4. We continue to see more offers, while bids are slow. With buying interest in Q4 between € 3700 and € 3750, and thin volume behind it, we see sellers struggling to either take the jump or hope for a bounce from Christmas demand. But we have seen them wait from a € 4300 bid, now € 600 lower and doubting whether to sell at € 3700. At some point we expect them to hit the bids and be done with the chase. Speaking to end users, they claim to be buying between € 3700 and € 3850 DAP for this year deliveries from producers and traders, depending on the specification.

And with a smaller bid-offer spread on Q4, we see the Q1 market trading lower as well. Q1 traded for NL/DE/BE/DK/SE/IE at € 3950, and we see offers for regular NL/DE/BE at € 4050. For Q2 we see offers at € 4250. One buyer claimed to have bought H1 butter at € 4100,-, which suggests sellers are starting to try and get the remaining bids for the start of 2027. The only thing we still see trading at a premium is EEX futures. The dying EEX futures again proved to be flawed, with the French increasing their quotation to € 4570 and the Germans keeping their quotation steady at € 4200. They both sit well above the two new initiatives, Pan EU butter and VPI butter, which quoted € 3890 and € 3880. With that quote, the French now sit almost € 700 above where the market average sees butter prices, and almost € 800 above where we would put butter prices.

Our opening market should look something like this:

Cheese: Steady commodity

The cheese market feels relatively steady compared to the butter and SMP markets. Gouda prices might move up and down a few cents, but no major changes. We traded a few trucks at € 3475 for October and continue to see offers for the full quarter at € 3500. Mozzarella prices feel weak, but with bids at € 3390 for fresh mozzarella, we can't find matching offers. Only for frozen mozzarella did we trade € 3400, for a single load.

Looking at the market, we feel it continues to trade sideways, with slightly more bearish sentiment due to weaker fats. But speaking to partners, the Gouda and mozzarella feel young; producers seem to have sold what they needed and some claim to be lowering their production. If spot demand gets active again, we would not be surprised to see a small (not big) uptick in prices again.

Our opening market should look something like this:

Powders: Waiting for the next jump up

The powder market is, for us, clearly the most bullish one out there. We spoke to a lot of buyers yesterday, who can simply be put into two categories. One category of market participants clearly accepts the bullish market conditions, but prefers to get a bit more confirmation from either end users or export markets before buying more. And there is a group of buyers (traders, end users) who still can't get used to powders above € 3300. We recognize a lot of the "arguments" we heard two years ago from our butter buyers... Lines like "these prices are not sustainable, it's going to kill demand", "this market is pushed up by traders" and "let's wait and see, we can always buy expensive".

The denial is extremely recognizable, but the current SMP buyers in denial could learn from their butter peers. Their butter peers are still nervously buying stock 12-18 months forward at a € 1000,- premium vs. the spot market, as their denial strategy has cost them dearly. Even the partners trading high whey protein products have learned that prices can go up 4.5x before finding too much resistance. We are not predicting € 10,000,- SMP prices; that surely seems impossible. But strong demand over the next weeks can easily push prices over € 4000,-, as the US has proven over the last weeks as well. The CME spot call sits above € 4250, but the CME curve also trades € 3800+ for Q4 and € 3500+ for Q1.

Speaking to our partners, the bullish indications continue to be that the EU faces no competition from the US, only from NZ, big tenders in the SE Asian markets and derogations being released in Algeria. ONIL is expected to come to market within a few weeks, Ramadan buyers are expected to still need to buy, EU domestic buyers are short covered, SMC prices are expensive and producers are well sold.

Our opening market should look something like this:

Final note

The gap between powders and butter is getting smaller, and if the US has taught us anything, it's that we need to get used to extremes. Both markets only need a small spark to make a big jump up or down. Butter could drop quickly if cream prices fall. The fact that the end of September / beginning of October shows stable to weaker cream prices is a clear early warning signal. For the SMP markets, if a few big tenders in SE Asia close at higher prices, or ONIL enters with a big tender, we could see another € 200 jump. For those seeking calm and quiet, we suggest brokering/trading cheese. It has been a bit of a snooze fest from what we could see, but we would be happy to get a surprise wake-up call there.