DCA Benchmarks: Milkfat market commentary week 34

While cream prices continue to rally, butter prices remain constrained by ample inventories. As a result, the spread between the DCA benchmarks for cream and butter has widened to levels not seen for a considerable time.Declining seasonal milk production, further exacerbated by the recent heatwave, is tightening cream availability across Europe. Traders describe the market as notably tight. At the same time, firm demand from the fresh dairy segment is exposing this limited supply. Consequently, the DCA Cream benchmark has increased by EUR 295 to EUR 5,195 per tonne, its highest level since March.The broadly positive sentiment in the dairy market has also provided support to butter prices. The DCA Butter benchmark rose by EUR 65 to EUR 4,070 per tonne. However, further gains continue to be limited by persistently high frozen butter stocks across Europe, which are expected to weigh on the market for some time. Seasonal demand is, however, anticipated to improve over the coming months. The sharp rise in cream prices has also changed processing economics. Purchasing additional spot cream for butter production is no longer commercially attractive, reducing the incentive for butter manufacturers to source extra volumes. If this situation persists, it could curb butter production in the period ahead, although it remains too early to determine whether this effect will materialise.