What drives the dairy market? Cheese, proteins, butter [296th edition of Foodcom DAIRY newsletter]

Welcome, Partners!

Welcome back to our newsletter!

Transactions at the end of January indicate that the dairy market is beginning to move in different directions. Exceptionally high milk yields across Europe continue to ensure good supplies to the liquid products markets, while milk fat has begun to stabilise after earlier pressure. At the same time, cheese prices are becoming more stable due to limited availability in the near term, and protein products continue to enjoy strong demand. Overall, price trends are no longer moving in one direction, highlighting the clear differences between key segments of the dairy market.

Milk powder

The skimmed milk powder market is strengthening. The price of food-grade SMP is currently €2,100-2,200/MT FCA, supported by active international demand. Recent buying interest from Algeria, including significant volumes booked for delivery from April onwards, has boosted sentiment and reduced forward availability. Producers report limited flexibility for the coming months of delivery.

Feed-grade SMP continues to closely follow food-grade SMP prices and has risen to a similar level of €2100-2200/MT DAP NL. Despite abundant milk supply, the market shows little inclination to correct downwards as selling interest remains limited and producers remain disciplined.

Nevertheless, overall milk supply remains very high, which continues to limit the medium-term upside potential for milk powder prices once demand is satisfied in the near term.

Cheese

At the beginning of January, high milk purchases and seasonal production increases kept cheese markets stable, with well-managed stocks and limited storage pressure.

Since then, cheese markets have become more stable. Demand has increased, with several producers reporting that they have sold most of their stocks for the near term, and offers for March and April deliveries are already being discussed at higher levels. Gouda and Edam cheeses continue to sell at prices slightly above £3,000/MT, while the price of Cheddar curd remains stable at around £3,250/MT, keeping cheese one of the most resilient segments of the dairy market.

Fats

Butter markets had weakened earlier under pressure from large milk inflows and high cream availability, leading to a price correction. Market conditions have started to improve in recent days. Butter prices are currently being discussed in the range of £3,700-4,000/MT, reflecting a gradual recovery after recent declines.

This rebound is supported by higher cream prices, which have reduced selling pressure on the butter market. Although milk supply remains high and continues to limit upside potential, the recent improvement in butter and cream values has stabilised market sentiment. Nevertheless, compared to cheese and whey proteins, milk fat remains the weaker part of the dairy complex.

Fluids

The liquids markets remain under significant supply pressure. Skimmed milk concentrate prices have risen sharply, virtually doubling to €1200-1400/MT, reflecting limited processing capacity and high milk inflows.

Cream prices had previously fallen alongside butter prices, reflecting the overall weakness of the entire milk fat sector. Recently, prices have started to rise and are currently hovering between EUR 3,200 and EUR 3,500/MT.

This increase should be seen as a partial recovery rather than a structural tightening of the market. Milk supply remains high and cream availability continues to be plentiful. However, following the earlier correction, market participants seem less willing to sell at lower prices, allowing prices to rebound. Higher cream prices are currently impacting butter markets, supporting prices and improving sentiment across the dairy fats sector.

Whey powder and proteins

Sweet whey powder markets remain stable or are strengthening. The price of feed-grade SWP remains at €1040-1050/MT DAP NL, while the price of the food-grade product has risen to around €1150/MT. Demand remains moderate, but limited production provides good support for the market.

Whey concentrate prices remain unchanged at €700-800/MT and continue to attract interest mainly from producers involved in drying high-protein WPC.

The whey protein complex remains a standout segment of the dairy market. WPC80 prices have risen above £14,000/MT and are expected to continue rising, while WPI prices remain above £23,000/MT. Spot market availability remains very limited. Production continues to shift towards these more profitable proteins, limiting availability across the whey complex and providing indirect support for the sweet whey powder and lactose markets.

What else?

Europe

Arla Foods has transformed its entire European production operations to run on 100% renewable energy through long-term power purchase agreements (PPAs), ensuring both energy supply and price stability in the face of ongoing market volatility. From the end of 2025, renewables will cover the electricity consumption of the cooperative’s 46 European plants, representing around 93% of its global consumption. The agreements, linked to new wind and solar projects in countries such as Germany, the UK, Denmark and Sweden, are part of Arla’s broader strategy to electrify production and reduce exposure to fossil fuel price volatility, while meeting its decarbonisation targets.

Oceania

Fonterra has opened applications for South Island farmers to participate in its organic programme for the first time, responding to growing global demand for organic dairy products. The cooperative plans to process organic milk at its Stirling facility from the 2028/29 season, and recruitment is starting now to give farmers time to become certified. More than 100 farms are already participating in the programme in the North Island, and the expansion of the programme is intended to support farmers’ incomes, as organic milk provides an average premium of around £2 per kgMS above the purchase price, with the current forecast for the 2025/26 season at £13.10 per kgMS.