Butter market shows Bitcoin-like traits again

While milk powder and cheese prices will continue to rise steadily at the beginning of 2022, the price of butter is shooting in all directions. There is little to be seen in the price of the DCA quotation. The nervous market sentiment cannot be read from the price of the ZuivelNl listing, but it is no longer taken very seriously by many in the market. The idea is that the influence of two dairy companies and traders would be too great, making the input unreliable.

In addition to Bitcoin, the erratic market sentiment has also been compared to BSE, or mad cow disease. Although this comparison is somewhat flat, it is symbolic of the wild swings the market is currently experiencing. 

Sentiment clearly upwards
However, if you zoom out on day trading, sentiment in the past few months was clearly upward. A high level has now been reached. Never before have butter prices been above the €5.000 per tonne limit in a first quarter, and prices are currently even approaching €6.000 per tonne. Last week trading took place above these price levels. The butter market is benefiting from the scarcity on the dairy market, due to the low milk supply in Northwestern Europe. This results in high prices across the board.

Now that prices have risen so high, uncertainty is creeping into the market. Knowing that milk supplies will increase seasonally towards spring, the dairy trade does not dare to take positions. The chance of a further price increase is considered small, although prices have unexpectedly risen again in recent weeks. The trade is closed back-to-back to prevent mistakes.

Buyers stay close to home
Looking at the fundamentals in the market, the physical butter market is in solid shape. Due to the low milk supply, stocks are described as tight. This is reinforced by the fact that a lot of milk currently goes into the cheese bin, as a result of the good valorization that this provides. At the same time, there is a lot of resistance to the high prices at retail. Buyers are hinting at a price drop and are therefore reluctant to enter into long-term contracts at high levels. Partly because the demand for butter usually weakens as the summer months approach. Although the 'r' is still in the month for the time being, winter is fairly advanced. In short: the chance of a price drop is considered reasonably high. Also because the futures contracts on the EEX for the coming months are often below physical butter prices.

In addition, European butter prices are the least interesting from the perspective of sales opportunities on the world market. Product from New Zealand and the United States is cheaper, although the differences expressed in US dollars are quite limited. What is clear from the graph is that butter prices in Europe are moving much more nervously than on other continents.