Lower milk supply tightens UK cheese market

The heatwave across Europe is changing sentiment across parts of the dairy market. High milk volumes had been weighing on butter and commodity prices, but lower output and weaker milk constituents are now tightening availability.UK milk volumes averaged 42.19 million litres per day in the two weeks to 4 July. This was 1.63 million litres lower, or 3.7% below the same period last year.In Europe, French milk volumes fell by 7% during the week of the heatwave and were 11% lower year on year. German volumes declined by 3.6%. A further heatwave, which is expected, would reinforce the decline in volumes and the shift in market sentiment.Cream reacted first. European values reached around €4,200 at the peak, while UK prices ranged from GBP £1.60 to GBP £1.69 per kilogram. This placed UK values above European valuations.Butter less quickButter has reacted less quickly than liquid dairy products. The Dutch butter price (ZuivelNL) increased by €70 to EUR €3,820, its first rise since late May, taking the average to €3,880. Some traders report that spot prices are now above the Dutch price, with the DCA benchmark at €3,900.Whether this level can be maintained remains uncertain, as EU stocks are still extremely high.EU butter futures increased by an average of €65 this week to €4,225. This only partly offset the decline recorded in the previous week. November and December contracts remain above EUR €4,400, which is significantly higher than current physical market levels.Cheesemakers sell raw milkUK spot milk prices also strengthened. Some loads reportedly reached GBP £0.47 per litre, although sellers with larger or distressed volumes may achieve levels closer to GBP £0.40.These prices have encouraged some cheesemakers to sell milk rather than process it into cheese. Published prices from StoneX and EEX imply mild Cheddar values below GBP £2,800 (approx €3,300) per tonne. DCA reporterd a EU-benchmark price for mild of €3,325 last week. In practice, UK cheesemakers are not selling at this level. Traders are reportedly selling offcuts at GBP £100 per tonne above this figure.The sale of spot milk is expected to tighten UK cheese availability further. Stocks are generally under control following recent high volumes of curd exports. Some sellers report limited or no spot availability for July and August.Cheddar offers withdrawnSome buyers continue to reference mild Cheddar prices of around GBP £2,850 to GBP £2,900 per tonne. However, offers at these levels were withdrawn at the end of last week. If mild Cheddar is not currently trading at GBP £3,000 per tonne, it is expected to be offered at that level soon.Whether this level can be sustained remains open to debate and depends entirely on milk volumes and spot market activity. Mature Cheddar below GBP £3,650 per tonne also appears unrealistic. Mozzarella is valued at around GBP £3,125 per tonne in the UK.Stable powder marketsIn the powder market, Dutch skimmed milk powder remained unchanged at €2,690 per tonne (ZuivelNL), while DCA was slightly higher at €2,710. Whey powder was unchanged at EUR €1,300. DCA was again higher for feed-grade whey powder at EUR €1,475. It should always be stated that ZuivelNL prices reflect the previous week, while the DCA benchmark represents the week in question.EU skimmed milk powder futures declined by around EUR €70 over two weeks. Over a one-month period, however, they were broadly unchanged at EUR €2,760.