Dear Dairy: GDT +2.3%. Is the Market Quietly Turning Before Q4?
Thought it a good time for my "quarterly review".
GDT 410 moved higher, but the real story sits underneath the index: powders strengthened, fats diverged, Europe tightened, and Q4 risk is beginning to change.
There are moments in commodity markets when the headline moves first.
And there are moments when the market changes underneath the headline before anyone is ready to admit it.
I think we may be somewhere in between.
For much of this summer, European dairy has felt strangely quiet.
Prices fell.
Buyers waited.
Sellers became more flexible.
Stocks needed to move.
And despite all the discussion around weather, production and Q4, physical activity often remained surprisingly slow.
Then, over the last two weeks, something started to change.
Not everywhere.
Not in every product.
And certainly not enough yet to call the entire dairy market bullish.
But enough that I am paying much closer attention.
First, the poll
Before GDT 410 I asked my network where they expected the index to move.
21 people voted.
4 expected a rise above 2.5%.
10 expected an increase between 0 and 2.5%.
6 expected a decline between 0 and 2.5%.
1 expected a fall greater than 2.5%.
The result:
GDT +2.3%.
So the largest group landed in the correct range.
And approximately two thirds of respondents got the direction right.
That matters to me.
Not because a LinkedIn poll predicts the future.
It doesn’t.
But because the people voting include traders, buyers, producers, processors and others working inside the market.
The poll is becoming a small snapshot of conviction.
And conviction often changes before procurement does.
Now look under the headline
The overall GDT index increased 2.3%.
But the products moved very differently.
SMP +7.6%
Mozzarella +6.1%
Lactose +3.2%
WMP +3.0%
Cheddar +0.6%
Against:
Butter -2.0%
BMP -3.5%
AMF -6.0%
That is not one dairy market.
That is several dairy markets competing for attention at the same time.
SMP is the number I am watching
A 7.6% move in SMP deserves attention.
One auction does not establish a trend.
But when one strong auction agrees with signals appearing elsewhere, it becomes more meaningful.
European SMP has been gradually becoming firmer.
US NFDM has also found renewed support.
European milk availability became tighter during the recent heat.
Liquid dairy values moved sharply in parts of Europe.
And buyers are beginning to think again about Q4 availability.
None of these factors alone is enough.
Together, they form a picture.
The question is no longer simply whether SMP can fall further.
The more interesting question is whether enough cheap product exists to satisfy buyers once normal Q4 purchasing returns.
That is a very different question.
Europe changed faster than many expected
For several weeks Europe was almost asleep.
Then cream woke up..
And it did so violently..
European cream values moved dramatically higher during the past week as milk availability tightened and processors competed for liquid fat.
Milk also strengthened.
Spot indications in several markets moved higher as the summer heat reduced deliveries and, in some areas, milk solids as well.
This is important because the European dairy market does not start with butter, cheese or powder.
It starts with milk.
When the value of the raw material begins to move, eventually processors must decide where that milk creates the greatest return.
And that allocation decision travels through the entire dairy complex.
Cheese.
Butter.
Powder.
Cream.
Concentrates.
Whey.
That is why I watch liquid markets so closely.
They often tell us what finished products may do next.
But then GDT fat fell
And this is where it gets interesting.
While European cream became dramatically more expensive, GDT butter fell 2%.
AMF fell 6%.
At first glance those things appear contradictory.
They are not necessarily.
They may simply be telling us that regional fundamentals have separated.
The European fat market has its own supply balance.
The US has another.
Oceania has another.
Stocks are different.
Milk flows are different.
Buyer coverage is different.
Currency is different.
Export competitiveness is different.
And increasingly, the global dairy market cannot be interpreted through one benchmark alone.
That creates dislocations.
And dislocations create trade.
And everyone is scrambling again, looking for the big whale.
The US deserves much more attention
For European buyers, the United States remains one of the most interesting pieces of this market.
US butter means expensive and exports are complicated, relative to Europe.
Domestic cream availability and inventories continue to weigh on the US fat complex.
That creates a completely different picture from what we have just seen in European cream.
But US cheese is another story.
International demand for American cheese has been strong.
US pricing has been competitive.
And if exports continue absorbing product while milk production fails to accelerate meaningfully, the US cheese market could tighten faster than expected.
NFDM has also strengthened again.
That matters for Europe.
Because once US powder becomes less cheap, one source of competitive pressure disappears.
Global buyers then have fewer attractive origins.
And the marginal buyer begins to matter much more.
China remains the wildcard
I wrote last week that China deserved watching.
I still believe that.
Chinese dairy demand does not need to return to the levels we remember from previous cycles to move this market.
It only needs to improve at the margin.
That is the important distinction.
A market can remain structurally weaker than several years ago while becoming much more important to price formation today.
If Chinese buyers increase WMP or SMP purchases at the same moment that European production tightens seasonally, the effect could be disproportionate.
The GDT powder result may be an early indication of this.
Or it may simply be buyers covering after a weak period.
We need more evidence.
But I would not dismiss it.
Just recently the most expensive butter I could get on the market was Chinese. And now, we are flipping, once again....
Cheese is quietly getting interesting again
Cheese does not have the same dramatic headline as SMP this week.
But I think it deserves attention.
European Gouda and Mozzarella have strengthened from their summer lows.
Cheddar has also improved in several markets.
And US cheese remains competitive internationally.
The important issue is not whether cheese suddenly explodes upward.
The issue is replacement cost.
If milk becomes more expensive, cream becomes more valuable and powders command better returns, cheese manufacturers eventually need a higher cheese price to justify milk allocation.
This can happen slowly.
And then suddenly.
At the moment, activity remains too quiet for me to call European cheese aggressively bullish.
But the downside looks less comfortable than it did several weeks ago.
Hey, we are just brokers, as such we do NOT take positions, so we are lucky enough to sleep well at night, and we can give you HONEST assesment on the markets.
Q4 is becoming the real trade
August can be deceptive.
People are away.
Factories operate differently.
Buyers delay decisions.
Physical trade can look dead even while the balance sheet underneath the market is changing.
September is usually when reality returns.
People return from holidays.
Schools reopen.
Foodservice normalizes.
Procurement teams begin closing Q4 gaps.
Processors start thinking about year-end inventories.
And buyers who waited all summer suddenly discover whether waiting was clever or expensive.
That is why I think the next four to six weeks matter much more than today’s GDT number alone.
My Q4 view
My bias has changed.
I am not aggressively bullish across the entire dairy board.
There is still product to move.
There are still inventories in parts of the system.
European demand is not spectacular.
And global economics remain uncertain. So I tell all my clients, especially suppliers the same - it's not the time for getting greedy..
I am becoming increasingly constructive on Q4.
The downside risk appears smaller to me than it did earlier this summer.
The upside risk is beginning to grow.
Especially if three things happen together:
European milk production disappoints.
Asian demand improves even modestly.
Buyers return in September under-covered.
...If those three conditions align, the market could move much faster than the current physical activity suggests. . . .
My product view into Q4
SMP
Constructive.
The latest GDT move is significant enough that I would not ignore it.
Europe is firmer.
US NFDM has recovered (About time).
And tighter milk availability could restrict production.
I would expect more volatility, but I now see greater upside risk than downside risk heading into Q4.
WMP
Also constructive.
WMP has been strengthening in Europe and GDT moved another 3%.
Asia remains critical here.
Any improvement in Chinese buying could quickly change sentiment.
Cheese
Moderately constructive.
European cheese has started firming, but buyers remain cautious.
I would not expect a straight line higher.
However, higher milk replacement costs should eventually create a floor underneath cheese.
Butter
Neutral to slightly constructive in Europe.
Much more cautious globally.
European cream strength is difficult to ignore.
But frozen stocks and cheaper international fat continue to limit the story.
The difference between fresh European fat and global butter may remain one of the biggest trading opportunities through Q4.
AMF
Still cautious.
The latest GDT decline shows that global fat demand has not fully turned.
I want more confirmation before becoming bullish here.
Whey
Constructive, particularly where stocks remain tight.
European sweet whey has strengthened and high-protein whey values remain historically important.
But individual protein categories are increasingly behaving differently, so this is not a market where I would generalize too much.
WPCs assent to the moon, should hopefully stabilize more..
My prediction for the remainder of 2026
If I had to summarize my view today:
I do not expect a return to the extraordinary dairy markets of previous years. But we could see signficant volatility continue.
I do expect Q4 to be firmer than Q3.
And I think the greatest risk right now may be buyers assuming that the quiet summer market will continue indefinitely.
Markets rarely announce the turn clearly.
They become uncomfortable first.
A price stops falling.
An offer disappears.
Cream suddenly moves.
Milk gets harder to find.
A buyer pays €50 more.
Then €100 more.
And eventually everyone agrees the market has changed.
By then, the easiest buying opportunity is usually gone.
My base case for the rest of 2026 is therefore:
Powders firmer.
Cheese gradually firmer.
European liquid dairy supported.
European butter recovering cautiously.
Global fat remaining much more mixed.
And volatility increasing as regional markets diverge.
I would not be surprised to see September become the month where the market decides whether this is merely a summer correction…
or the beginning of a genuine Q4 repricing.
That being said, I'm not sure yet about 2027... ask me later.
One last thought
A few weeks ago, many conversations were about how much lower prices could go.
Now I am increasingly hearing a different question.
How much Q4 coverage do you have?
That does not mean the bull market has arrived.
But it tells me the psychology is changing.
And commodity markets often turn in psychology before they turn on paper.
Dear Dairy.
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