DCA benchmarks: Butter commentary week 28

Butter prices continued to strengthen this week, following the upward trend in the cheese market, although trading activity remains relatively subdued. While a new heatwave across Northwest Europe is accelerating the seasonal decline in milk collections, butter stocks are still considered ample.Nevertheless, the market recorded another solid price increase, similar to last week. DCA butter benchmarks are now approaching the €4,000 per tonne mark, although they remain just below that level this week.The improvement in sentiment comes as milk production enters its seasonal decline, a process that has been accelerated by the recent heat. Although milk collections in many European countries remain above last year's levels, the surplus is gradually diminishing. There are no signs of supply shortages, but the market is becoming less oversupplied.Demand still weakDespite the firm price gains, underlying butter demand remains relatively weak. Trading activity is described as limited, in contrast to the cheese market where demand is proving more resilient. Buyers are showing little urgency to cover additional volumes, largely because frozen butter inventories are reportedly still substantial. At the same time, market participants increasingly believe that butter prices have reached their seasonal low, which could stimulate additional buying interest in the coming weeks.Cream moves stableUnlike most other dairy liquids, cream prices remained broadly stable. The DCA benchmark for cream in Northwest Europe increased by €5 to €4,190 per tonne. Cream therefore continues to trade at a relatively low premium to butter. Processors with flexible production capacity are increasingly directing available milk towards cheese production, where returns are currently more attractive as milk availability declines. Over time, this could gradually reduce the currently ample supply of butter.