DCA Benchmarks: Milkfat market commentary week 29

While drought has driven significant price movements in the liquid dairy and cheese markets in recent weeks, its impact on the butter market has been more limited. Nevertheless, underlying market sentiment has improved, with tightening milk supplies providing stronger support to prices.Concerns over tightening milk supplies are also providing stronger support to the butter market, although trading sentiment remains relatively subdued. The DCA butter benchmarks moved higher this week but continue to trade just below the psychological threshold of €4,000 per tonne. Producers indicate they are unwilling to sell prompt volumes below current market levels, while only traders occasionally offer product at slightly lower prices.For third-quarter deliveries, buyers should expect to pay premiums of several hundred euros per tonne. These premiums could increase further if milk collections continue to decline sharply, as this would particularly reduce the availability of fresh butter. At the same time, substantial frozen butter stocks remain in storage, limiting the upside potential for now.Cream still relatively cheapCompared with butter, cream remains relatively affordable. The DCA cream benchmark increased by €20 this week to €4,210 per tonne. Demand from the fresh dairy segment is steady but not particularly strong, according to traders. Demand from butter manufacturers could increase if milk shortages intensify further, which would make cream relatively more expensive. However, the market has not yet reached that point.Weather conditions are expected to cool in the coming days, but forecasting models continue to indicate renewed risks of above-average temperatures towards the end of July and early August. As a result, European milk collections are likely to continue their seasonal decline, albeit with some week-to-week fluctuations. For the time being, the underlying tone in the European dairy market therefore remains firm.