Market outlook

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Market Outlook | 9 September 2020

In this month’s Market Outlook our Senior Commercial Manager, Martin Doorduin, analyses the current trends in the dairy market.

Skimmed Milk Powder

During the month of August, prices for SMP increased in the 3 major exporting regions (New Zealand, the United States and Europe). In Europe the average SMP quotation (French, German and Dutch) showed a recovery in the 2nd half of August and the average quotation increased by more than 3% between mid-August and the 1st half of September. The last GDT showed a similar trend, with SMP being traded USD 80/mt higher than 1 month ago. Last week, the CME traded almost 3% higher than it did in the first week of August 2020.

Milk production in the main exporting countries, based on both volume and solids, is up by approx. 1.5% in 2020. In the US, milk production seems to have stabilised, but it is still ahead of last year. The same thing has happened in the EU, while New Zealand expects a strong start to the new season.

Although European producers still have volumes to sell before the end of the year, EU producers in general are comfortable. Most of the producers are of the opinion that prices may increase further and that they are able to wait for this to happen. The US seems to have the best availability at the moment, although producers are more relaxed since CME is finding support at higher levels.

The stock levels, in combination with a volatile exchange rate, are the main reasons why the US is currently leading in the world market and Europe is in second place. In addition to the US, there also seems to be some availability in other countries, such as Ukraine, Turkey and India. These origins are trading at lower levels than the US product and tend to be sold in price sensitive markets.

In general, demand has been slow during the European summer vacation period. However, end users are now coming back from vacation and are observing the market. This has resulted in more business during the last 2 weeks at levels between EUR 2100–2130/mt at the FCA European factory for September and approx. EUR 30–50/mt higher on Q4. So far SMP exports from the US have been strong (+28.6% Jan–Jul 2020 vs Jan–Jul 2019) and they remain strong, albeit at lower prices. SMP exports from the EU are on a par with 2018, but lower than 2019, when the EU had a lot of intervention powder to move. Buyers are mainly looking at Q4 and Q1 at the moment.

At Bdairy, our view is that the market remains stable in the short term (1 month ahead) and bearish in the long term (Q4 2020 onwards) as milk production is relatively strong and demand will be affected by the global recession that is expected to come. In most countries, dairy is seen as a luxury product and people will look for cheaper alternatives when they have less money to spend.

Bdairy Outlook: Stable September and bearish as of Q4 2020


The butter market in the EU has been slow for almost 2 months. Most activity in the first half of August was with cream, when cream prices increased from approx. EUR 4250/mt delivered EU factory to approx. EUR 4500/mt delivered EU factory in one week. The main reason for this was the high temperatures in Europe, which resulted in less milk being produced and a higher demand for fresh products, such as ice cream. After 2 weeks, weather conditions and milk production returned to normal proportions again, while cream prices remained at similar levels (around EUR 4500 /mt delivered). For European producers this means that they are better off if they allocate their cream to other products, which give a better return than butter. Therefore, EU producers don’t feel under pressure to sell and the butter market in Europe is relatively stable with normal stock levels. The latest update on the European production figures shows a butter production increase in Europe of 1.7% (Jan–Jun 2020 vs Jan–Jun 2019).

The world market shows a different picture. For instance, the GDT butter prices decreased during the last 3 events from USD 3438/mt (event 265) to USD 3334/mt (event 267) and AMF from New Zealand showed a similar decrease. Over the same period, the USD weakened against the EUR (from 1,176 to almost 1,200 and 1,183 today), which means that European butter, with its lowest prices between EUR 3400–EUR 3450/mt FCA, is not competitive on the world market. This is not going to change soon, therefore it is expected that butter exports from Europe in the 2nd half of the year will be lower compared to the 1st half of 2020. Until now, butter exports from the EU have been very strong. Europe exported almost 67% more butter between Jan–Jun 2020 compared to Jan–Jun 2019.

In Europe, the fat market is mainly supported by the higher retail demand for butter and cheese and there are clear signals that the retail demand has been stronger and more sustainable than expected. This gave good support to the market and avoided a drop in prices.

At the same time, European end users are also comfortable. Some end users are covered until the end of the year and are already focusing on 2021. Other end users took a more conservative approach and may still need to buy some butterfat before the end of the year if demand remains as it is today and if there is no second outbreak of the COVID-19 epidemic.

At Bdairy we foresee a similar scenario to that of SMP. European end users will probably conclude that they still need some more butter before the end of the year. This gives enough support to the EU butter market to keep prices at least stable and maybe even slightly firm in the short term. However, we believe that at a certain point demand will become slower, therefore we are seeing more downward potential than upward potential in the long term. As a result of this we expect cream prices to go down as of mid-October onwards and butter prices will follow this trend.

Bdairy Outlook: Stable until the 1st half of October and bearish as of mid-October 2020

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