DCA benchmarks: Milkfat commentary week 10

Despite high butter stocks and strong milk production, the DCA benchmarks moved sharply higher this week. Cream prices increased even faster and, for the first time since November, the cream benchmark moved above the butter price.Looking at the fundamentals of the milk fat market, the price increases are difficult to explain. Stocks remain high in Northwest Europe and milk production is also strong. In addition, the Irish milk season is about to start, which means more butter will enter the market in the coming months. Nevertheless, the DCA butter benchmark for Northwest Europe increased by €375 to €4,680 per tonne. The last time weekly price increases were this large was in the spring of 2022, when the war in Ukraine had just started.Geopolitical sentimentMarket insiders mainly attribute the current price rally to geopolitical sentiment following the tensions in the Middle East, even though relatively little dairy product is exported to this region. At the same time, some market participants question whether these higher price levels can be sustained in the coming weeks. Cream and AMF prices also moved sharply higher. The cream benchmark for Northwest Europe increased by €860 to €4,995 per tonne. Within just two weeks, cream prices have risen by as much as 38%. Higher butter prices allow room for this increase, while additional demand from the fresh dairy segment ahead of Easter is also supporting the market.