The market sentiment for dairy fats was reported strongly bearish throughout January 2022, with EU cream prices declining by 16% to €4,200/mt and butter prices falling by €850/mt, to €4,100/mt on the last assessment of January. The bearish market sentiment was driven by subdued demand, as key European buyers remain off the market in anticipation of further price declines. Further bearish pressure came from increased butter production, linked to better-than-expected milk intakes, with unprofitable liquid milk prices leading to higher butter production. Subdued demand and a climb in production have led to the further stock builds, continuing the trend of growing stocks that was visible in December 2022.
However, during the first week of January, market sentiment for dairy fats turned bullish, with prices increasing for cream and butter. For reference during the first assessment period in February, the MBP for European Cream EXW 40% [Mintec Code: ED25] increased by €200/mt on the week to €4,500/mt. The assessment for Unsalted Butter EXW European Union [Mintec Code: J116] was made at €4,300/mt, up €200/mt week-on-week (w-o-w).
Against expectations, more activity was reported, with buyers returning to the market this week. Willingness to commit to larger volumes has increased on the buy side, as the pressure of supply security starts to overpower the willingness to wait for the best price. However, sellers have now moved out of the market; throughout January it was easy to find lower offers on a daily basis, but processors are now limiting product availability to support the upward price trend.
One buyer stated, “the sell side is now playing the same game that we [the buyers] did in previous weeks. Whereas four weeks ago sellers were happy to commit to larger contacts, now they only go for small volumes and every inquiry we send is getting more expensive.”
Looking at the fundamentals, bearish price pressure is likely to dominate through the next five months until the end of the dairy flush during May. Warehouses are still reportedly full, and stocks have been growing lately. There has been stronger-than-expected milk production in key milk regions, such as Germany and the Netherlands, and low exports and domestic consumption across the EU. However, as we saw throughout 2022, the dairy market is not always driven by fundamentals. The sentiment of both sellers and buyers is also a key price driver. It remains uncertain if the market has turned fundamentally bullish, but with current market dynamics, a bullish sentiment for the coming two to three weeks seems likely.
