There appears to be renewed confidence in dairy markets as prices for most commodities shot up again this week on the European spot market.

Butter increased by €135/t, whole milk powder (WMP) by €175/t and skim milk powder (SMP) increased by €105/t.

These are all substantial increases and reflect increased activity in the market after being in the doldrums for the last 10 months.

Fonterra also announced an increase in its expected milk pay-out to farmer suppliers this year. While the announcement came as no surprise given the recent increases in the Global Dairy Trade (GDT) auction, it’s still a help in improving market sentiment. However, questions remain as to whether this current rally can be sustained.

Looking at international prices, butter, WMP and SMP seem to be in strong demand, but cheese is still struggling, dropping in price everywhere but falling by over 8% in the US.

In contrast, US butter is flying it, increasing in price by over 18% in the last two weeks.

Milk volumes in the US are down 0.5% year to date and the USDA expects that deliveries will be lower for the rest of 2023 and all of 2024 as farmer margins are squeezed.

Cow numbers are back and yield per cow is also back.

There is still uncertainty about what is happening in China and this was referenced by the Fonterra CEO.

The next couple of months are really a waiting game in terms of where demand for dairy actually is. The next GDT auction on Tuesday will be a good indicator of how the market reacts to uncertainty in the Middle East.