Tense, Tight & Tricky to Trade

Summarizing the first two trading days of this week feels difficult. With limited activity on our side, the market feels boring and uneventful, yet we sense tension and nervousness growing among our partners. The uncertain outlook has paralyzed several of them, drastically reducing activity. However, we believe that activity could return quickly once confidence is regained. As long as the market's outlook remains uncertain, it will stay tense, tight, and tricky to trade.

The market saw strong increases in the first weeks after returning from the summer break. Butter prices rose from €6,500 pre-summer to over €8,000; cheese prices went from €4,000 to almost €5,000; and SMP prices made a smaller jump from €2,250 to €2,600. However, over the last 2-3 weeks, that strong momentum has slowed, with some commodities even showing lower trades. Zooming out, the market is clearly in a bullish pattern, but on a week-to-week basis, there's some visible weakness.

The question remains: What is driving the bearish sentiment? Fundamentally, we are increasingly concerned about a decline in milk supply. Milk intake in Germany is becoming a serious worry, and with bluetongue disease now spreading into more areas of France, we might lose more milk than we can afford. The biggest bearish indicator? High prices. History has shown to many of our partners that these prices won’t last long. Sellers, afraid of missing the peak, prefer to sell a bit before the top is reached rather than risk being caught once it’s over. Let’s take a closer look at the different commodities.

Fats Are Weaker, Right?

Looking at the fat market and talking to our partners, it feels like the market is weakening. While it's true that traded prices on our platform have dropped roughly €200, the low liquidity behind these sales might not tell the full story. Feedback from producers, traders, and end-users suggests that most butter trades over the last 2-3 weeks in Q4 were well above €8,000. Although we traded roughly 800mt below that price recently, it’s a relatively low volume compared to trades outside our platform. And without saying the trades via our books are irrelevant (they are very relevant!), it’s been a lack of sellers keeping the volume low, not a lack of buyers.

Meanwhile, cream prices continue to trade well above €10,000, though some volumes at the end of the week traded significantly lower. However, the biggest volumes by far remain over €10,000. Futures, meanwhile, are showing a swing pattern, slowly moving higher with each swing, especially for 2025. Zooming out, the trend is clearly upwards, with each swing reaching new highs and each dip finding higher lows.

Admittedly, we’re less bullish on butter than a few weeks ago. Our strong belief that prices could reach €9,000 has shifted to a more realistic expectation of trading around €8,500 in Q4. While we previously expected Q1 butter prices to comfortably exceed €8,000, we are now less convinced. Nonetheless, we still see no reason to be bearish. The market remains tight with low stock, strong demand, and milk intake under pressure. We hear the new retail price in Germany is about to be set between €8,500 and €8,600, suggesting cream demand will stay strong above €10,000, and extra block butter production is unlikely below €8,600.

Cheese Is Checking Its Options

The cheese market has shown some decent upward movement but seems to have hit a ceiling. Traders are pushing against it, but it’s proving tougher than anticipated. It appears traders have taken the lead, taking pressure off producers who are comfortably observing market developments. While most traders seem confident in their market outlook, it’s taking longer for buyers to push through the €5,000 level.

Many end-users seem to be waiting for confirmation from the retail industry. Negotiations are fierce, and the pushback on higher prices is stronger than in previous years. We hear similar feedback from our partners in food service, where explaining the rapid price increases is more challenging, even compared to 2021/2022.

The postponement of buying activity could lead to a short squeeze, pushing prices up further than necessary within the next two weeks. The question is whether those holding stocks can patiently wait for buyers to return, or if inactivity will lead to weaker hands and lower sales. While our bullish momentum isn’t as strong as it was three weeks ago, we still maintain a bullish stance on cheese.

Powder Prediction: Sliding Sideways

After 18 months of sideways action, it seems safe to predict that the powder market will continue sliding sideways towards Q1. We expect the bottom to hold at €2,400 and the top at €2,600, within this tight range.

Conversations with powder traders don’t inspire much optimism—not because we dislike our partners, but because their energy seems drained. If we have the same discussion for two days in a row, it already feels repetitive, but our partners have been telling this story for over 1.5 years! Despite low stock levels, low production numbers, and short-term coverage, we also see low exports and more competition globally. With these factors unlikely to change, the powder market is expected to stay very flat.

SWP and WMP/FCMP have shown some strength in recent months, but resistance seems to be returning. Although we managed a small trade for some German SWP at €990 FCA NL, the old Dutch saying "one swallow doesn’t make a summer" fits this market well.

Summarizing

We can’t bring much more news to the table. What we aim to do is shed light on the dynamics we observe. We don’t want to be the broker who keeps shouting "BULLISH" in a down-trending market. But claiming we’ve reached the top or a pivotal moment doesn’t align with the feedback and feeling we get from the market. So, our bullish outlook remains, though we might add a small asterisk at the bottom of our updates, indicating we’re not as certain as we were a few weeks ago.

Markets Butter