Pricing dynamics continue to shift in European dairy markets. In early August, spot prices for butter touched off highs of €5,600/t, although physical trading was quiet, with many buyers on holidays.

With market activity back in full swing over the last fortnight, as buyers look to secure product for the busy autumn and winter months, butter prices have been under some downward pressure.

Spot prices for butter have traded down in the last week to anywhere between €5,100/t and €5,300/t, which is still an exceptional price in historic terms. However, the outlook for butter pricing into the final quarter of 2018 and early 2019 is below the €5,000/t mark, according to the EEX futures market.

How reliable this outlook is for butter prices is questionable, especially considering that Dutch farmers are likely going to have to cull a lot more dairy cows this winter to meet phosphate quota ceilings set by the Dutch government.

Offsetting the fall in butter prices is a brighter picture for skimmed milk powder (SMP). The recent tender sale of almost 31,500t of SMP out of intervention by the European Commission for a minimum price of €1,230/t, which is the highest tender price yet, has certainly helped support SMP markets.

While SMP prices are still historically very weak and close to intervention prices, fresh product is in demand and attracting prices above €1,700/t. There is also expectation that ONIL, the dairy-buying agency for Algeria, is preparing to step into the market to buy a significant volume of product, which is also supporting market sentiment.