European Dairy Market Faces Varied Trends in Fat and Protein Sectors
The European dairy market is currently characterized by a comfortable supply of dairy products amidst a period of moderated demand, exerting pressure on specific market segments. Among these, butter is identified as particularly vulnerable due to increased production and concerning levels of fat stocks across Europe. Analysts suggest that reducing these volumes would require significantly higher international demand, which has not yet materialized.
A shift in consumer behavior is also noted, attributed to the rising use of GLP-1 class medications for weight control, favoring protein-rich foods over those high in fat. This trend is deemed significant for Western markets and may partially explain the observed divergence in the behavior of fat and protein sectors over recent years.
Despite a negative outlook for butter, analysts do not foresee an unlimited devaluation. They predict a possibility of further price reductions during the summer months but believe current prices could influence contracts in the fourth quarter, provided milk production remains high.
Conversely, the skimmed milk powder (SMP) sector presents more favorable fundamentals. Despite increased production and stocks, the market is beginning to see a recovery in negotiations. Operators report that many buyers remain under-covered, a situation that could lead to new purchases when activity resumes post the European summer.
The global demand for proteins is perceived as strong, creating a more favorable environment for SMP compared to fat-rich products. There is a higher probability of SMP price appreciation after the holiday period, although this projection is considered with less conviction than butter-related estimates.
The cheese sector, however, remains challenging to interpret. High production and expected stock increases suggest price pressure, yet competitive exports have helped European producers stabilize the market by reducing prices. This mix of factors prevents a definitive assessment of the sector's trajectory, which continues to react more to market sentiment than to its own fundamentals.
The European market is experiencing a structural change in commodity behavior entering the second half of the year. Elevated milk availability continues to pressure the entire production chain, with fat-based products at higher risk of excess supply, while protein-related products find relatively more favorable conditions.
