EU Dairy Market Update: Butter Prices Surge, Skim Milk Powder Dips

EU Dairy Market Update: Butter Prices Surge, Skim Milk Powder Dips

Key Takeaways:

• Butter prices have followed a “two step down, one step up” movement pattern
• European skim milk powder faces persistent demand weakness – perhaps in part owing to foot-and-mouth disease concerns
• Cheese prices have held firm but diversion of more milk towards its production may soften the commodity

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European Dairy Markets: Butter Prices Hold High While Skim Milk Powder Lags

In the latest episode of Dairy Insights: Heard Mentality, a podcast from StoneX, host Nate Donnay, Director of Dairy Market Insights  sat down with Fearghal McCabe, Head of EU Dairy Brokerage at StoneX, to discuss ongoing shifts in the European dairy market.

Donnay noted that his bearish butter price forecasts had not materialized as expected, with the market holding firmer than anticipated over the past month. However, last week, European butter futures showed signs of downward pressure, prompting a deeper look into market trends.

McCabe explained that since January, butter prices had gradually declined from €7,200 to the low €6,800s for Q3. Rather than a sharp drop, the movement has followed a "two steps down, one step up" pattern, with occasional rebounds. He added that while the overall trend is downward, lower prices have started attracting buyers who had previously waited in anticipation of improved milk collections and higher margins. He also pointed out that when prices dip below €7,000, the impact is mainly seen in Q2 contracts, while Q3 and Q4 prices remain slightly higher due to seasonal factors.

Donnay observed that the butter market has been moving in cycles since breaking lower in September—sharp declines followed by brief recoveries. Traders are closely monitoring physical supply, as lower prices have been stimulating demand, leading to temporary rebounds.

Skim Milk Powder Faces Weak Demand

The European skim milk powder market has faced persistent price weakness, with Q2 futures recently hitting new contract lows. Donnay highlighted this decline, prompting McCabe to confirm that Q2 prices had been hovering around €2,625 per ton, with little movement over the past six months. While international markets such as CME and GDT have shown strength, European prices have remained stagnant, indicating continued weak demand.

McCabe noted that Q3 futures are trading at an €80 premium to Q2, with Q4 even higher, reflecting cautious optimism. However, physical market demand in Europe has yet to pick up significantly. One potential factor affecting demand is foot-and-mouth disease concerns, which may have caused a shift in Southeast Asian buyers' preference for Oceania products over European suppliers.

Trade flow data further supports this trend. Donnay pointed out that U.S. nonfat and skim milk powder exports in December were down 23% year-over-year, with shipments to Southeast Asia dropping about 40%. This decline coincides with Australia gaining market share, potentially at the expense of both the U.S. and Europe. Despite the price differentials, European skim milk powder has yet to see a strong demand rebound.

McCabe also noted that a strong U.S. dollar has played a role, though its impact on European prices has been limited. Meanwhile, Algeria’s ONIL tender is expected to return in the coming weeks, which could help demand slightly, though past Algerian purchasing trends suggest it may not significantly alter market pricing.

Cheese Market Holds Steady

The cheese market, on the other hand, has remained relatively stable. Cheddar prices are holding around €4,800 per ton, mozzarella around €4,100, and gouda around €4,300. Most of the recent trading activity in cheese has been centered around Q2.

McCabe explained that milk is increasingly being allocated toward butter and skim milk powder production, leading cheese sellers to hold firm on prices. If butter and skim milk powder prices continue to decline, however, more milk could be diverted to cheese production, which could soften cheese prices.

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Written by: Anne Lamedica

Experts: Nate Donnay, Director of Dairy Market Insights, Fearghal McCabe, Head of EU Dairy Brokerage