Market outlook

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Market Outlook | 8 May 2020

COVID-19 is still dominating the dairy market and the measures taken worldwide have resulted in a slowdown of the global economy. Most commodities are trading at low levels and dairy is no exception. There’s still good demand coming from retail, but food service is having difficult times as many restaurants are still closed. From the supply side European producers are reducing their milk prices. In addition, there are different initiatives in both USA and EU to decrease the milk production.

The European commission opened private storage, meaning they will pay a compensation to companies for storing SMP, Butter and Cheese for min 90 days and max 180 days. Moreover, there is a proposal on the table allowing farmers and producer organizations to conclude agreements or take decisions regarding reducing milk production volumes during a period of 6 months. In the US, the USDA recently announced a package deal of $19 billion to assist farmers.

At this stage it is not easy to estimate the impact of all these measures. In past years, government measures resulted in more uncertainty and prevented the market to correct itself. The recent high intervention stocks are still a fresh memory. We currently see the same uncertainty; end users don’t want to miss the opportunity to benefit from today’s low price levels, but at the same time they are struggling with their sales and they are not convinced that dairy prices will go up.

Skimmed Milk Powder

In Europe, cheese prices are still under pressure due to low demand from food service. This means that a lot of milk goes into SMP and Butter. After the big price drop earlier this year, we have seen a small correction and the SMP market in Europe is already stable for a few weeks with prices between EUR 1850 – EUR 1950/mt FCA. At the same time, we have seen a lot of pressure coming from the United States and Canada, with prices being offered between USD 2000 – 2100/mt CFR Asia/ Middle East. This means that the United States was the most competitive source for the last couple of weeks and as a result, a lot of the global demand has been filled by the US.

Bdairy expects that in a couple of weeks the gap between US SMP and EU SMP will become smaller again by US prices moving up since most of the pressure will be gone and EU prices moving down in order to become more competitive on the world market again. Therefore, Bdairy expects prices for EU SMP to go down by EUR 50 – EUR 100/mt. Further downward potential in the EU is limited as we are not far away from European intervention levels (EUR 1700/mt delivered EU warehouse).

Bdairy outlook for SMP: Slightly Bearish.


In the first months of this year, with a peak in March, 0.8% more butter has been produced in the EU. In addition, the Eucolait expects 190 kmt of year end stocks. As a result we have seen a big drop in butter prices at the end of March/ early April with prices around EUR 2500 – 2550/mt FCA in Western Europe, followed by a small correction by the second half of April with prices around EUR 2600 – 2650/mt FCA.

There is still a strong demand for butter mainly coming from the retail, supported by some good demand from export markets like the Middle East and North Africa. Current export figures outside Europe show an increase of 43% in January and 38% in February, compared to January and February 2019.

End users in Europe were a bit reluctant and not really looking for butter as they expected prices to go down further. However, as of this week some more demand came back from European end users mainly looking for H2 2020 and H1 2021. At the same time, there are some stronger signals of butter moving into private storage. In the short term this could keep the market firm, causing less pressure with producers. Therefore, Bdairy expects that butter prices will remain stable and even slightly firm with prices between EUR 2700 – EUR 2800/mt FCA in Western Europe for prompt availability.

Bdairy outlook: Stable/ Slightly Firm

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