Expensive Liquids, Expensive Commodities?

The first two days of this week have our heads twisting again. The market for liquids feels very tight, but the commodity market doesn't reflect that bullishness anywhere near as clearly. Cream between €5,300 and at times €5,500 should put butter well above €4,500. SMC levels we hear well over €3,000 should point SMP towards €3,400. And raw milk at 43–44 cents should give cheese prices a boost. But then again: when cream valorised butter towards €3,200, we didn't see those offers either. And raw milk at 8 cents never gave us Mozzarella below €1,500. It is tempting to read spot liquids as an indicator for commodity prices. Be careful you are not looking at a smoke screen. Some bears did exactly that when liquids were cheap. Some bulls are doing it now that they are expensive.

Zoom out and milk collections in the major EU producers still look fine. France is down only 0.1% on last year, Germany remains 2.5% up. The surplus of 5.5% is shrinking, but intake is now lapping very strong comparables. We would expect German production to drift slowly back towards last year's levels — which is still more than enough to keep commodity production at record highs. What we do hear is that Irish collections are starting to fall behind fast. July was still well up on 2025, but the most recent signals point to a significant decline. If that continues over the next few weeks, the Irish products that can sometimes be a burden on EU commodity stocks should not weigh as heavily this year.

We think it is too early to call current spot liquid prices a bullish indicator for the weeks ahead. But if they hold up over the next four to six weeks, that sentiment could change fast. The biggest impact would sit with cheese and powders, where stocks feel thin and forward coverage feels limited. Even on butter, a few weeks of lower production will make buyers nervous and push them towards the market. Our inner butter bear still says that stock levels plus forward coverage in the butter market are no foundation for bullish prices. But they are a foundation for a stable, rangebound market — one where spot below €3,800 is as unlikely as spot above €4,300.

Butter: Pressure on spot, demand on the backend

With over 600 MT of butter changing hands on Tuesday, the market is clearly getting a bit more active again. Early September sits between €3,825 and €3,850, while Q1 traded up towards €4,150 with more demand showing. Sellers on the back end stepped away during the day and came back towards the close aiming roughly €100 higher at € 4250. Supported by higher prices paid on futures — both NL/DE/FR and Pan-EU — traders of physical product are happy to trade that spread.

With Q4 demand absent, we expect the gap between Q4 and Q2 to widen. But traders playing the cash and carry game will keep front of the market supported. Now that the new Pan-EU butter settlements trade via StoneX in increasing volume, the market has a renewed reference point that lets buyers compare physical butter against futures far better. To our surprise, Pan-EU still trades roughly €200 above where we see the physical market — even though settlement prices have proven much more in line with where our own books close.

Internationally, the GDT Pulse closed lower on butter again, down 1.8% and roughly flat on last week's GDT result, while AMF traded down 6.5% — a solid bid down from last week. On the CME the sentiment remains bearish: butter stocks are still reported below last year, but the deficit against last year is shrinking. With current production numbers and stable milk intake, that is a bearish outlook for US butter prices.

Powders: Bulls move too high? or too early?

The powder market was very active last week, and whoever bought something relatively cheap in recent weeks now seems willing to sell part of it forward at a big premium. We agree the sentiment is firm, the outlook is bullish and the potential for prices to move further up remains clear. But the gap between last week's closing prices and this week's opening prices simply feels a bit too aggressive. Buyers look caught off guard, and many are still wondering whether this is another short squeeze or something more fundamentally driven.

It is easy to be right in hindsight, but we continue to see the reverse butter psychology at work. Producers, up until now, had no faith in sustainably higher prices and appear to have sold forward more than they needed. End users felt that waiting — as they have for almost two and a half years — was the best strategy. And many traders, who normally act as the balancing valve, have not found the courage to take a real significant position at these higher levels.

We did read an interesting article in the Financial Times, shared by the friends at Vesper, who are referenced in it: as dieters slim down, protein prices bulk up. This protein rally is not driven by a slowdown in production — production looks more than fine — it feels entirely demand driven. And although the focus sits on whey proteins, dairy proteins in whatever form seem to be gaining popularity.

If the demand pull turns out to look anything like what some of our partners describe, the bulls may not be moving their prices too high — they may simply be a bit early. This market has not run inventories down yet, and the large end users might be able to hold off a few more weeks, or even months. But as we always see, and as we will keep saying: the underlying fundamentals will always determine the price. Sentiment and denial can keep a market from rallying far longer than fundamentally makes sense.

That said, worldwide sentiment could slide a bit from here, as we saw a recent pullback on CME and yesterdays Pulse was firm, although not as firm as some expected. If European sellers want to stay connected to the market, their offers might find rather more traction just below yesterday's levels, or they might have to test their patience a bit. 

Cheese: Bullish with sellers

The cheese market remains a hard read for us. With Joey starting, we aim to get better at reading it. Yesterday it was clear the market is aiming well above last week's trading levels. September is quoted around €3,450 for Gouda and Edam, and Q4 is bid around €3,500 — although we could not find offers below €3,650 yet. Mozzarella still sits well above that, with spot offered at €3,700 and Q4 as high as €3,800. No traction yet, as buyers feel these offers have moved up a bit too quickly. But talking to the traders, nobody really seems to be sitting on stocks: producers expect to have less available, and buyers have been waiting for friendlier prices. Over in Cheddar, finding product below €4,000 is becoming increasingly difficult — the same goes for Emmentaler and Maasdam.

Want to discuss the market with us? Contact Joey at joey@getfairdairy.nl, or give him a quick ring on +31 6 20073144.

Final Note:

Three markets, three different questions. Butter is the one we feel we can read. Powders are the one where we like our view but not the speed. Cheese is the one we are still building our answer for — and starting this week, we are building it with more people on it. If there is one thing to take out of today: this is not a week to trade on somebody else's conviction. The liquids are loud, the offers are moving, and the temptation to follow is real. Ask what is actually in the stock, what is actually covered, and what the buyer on the other side has left to do. That is where the price will come from.

We are around. Call us before you decide, not after.

GFD, Good trading 🤝