Dear Dairy: GDT +0.9%. The Bullish Call Was Right, but the Market Is Splitting

86% of Dear Dairy respondents expected the market to rise. GDT Event 411 delivered another positive result, but strong powders and weak fats and cheese are creating a much more complicated picture for Q4.

Global dairy markets entered September with another positive GDT result.

Global Dairy Trade Event 411 finished 0.9% higher, extending the current sequence to four consecutive positive full Trading Events.

The average winning price reached USD 3,910 per metric tonne, with approximately 43,976 tonnes sold.

On its own, another positive GDT auction appears to strengthen the bullish case that has been developing through August.

And it does.

But underneath the headline, the market is becoming considerably more divided.

That distinction may become more important than the overall index as we move toward Q4.

Dear Dairy Index, was overwhelmingly bullish

Ahead of Event 411, I asked the Dear Dairy LinkedIn audience where they expected the GDT Price Index to move.

Twenty two dairy market participants voted.

40.9% expected a rise greater than 2.5%.

45.5% expected a rise between 0% and 2.5%.

13.6% expected a decline between 0% and 2.5%.

Nobody expected a decline greater than 2.5%.

That means 86.4% of respondents expected the market to rise.

The actual GDT result was +0.9%.

The market therefore moved in the direction expected by the overwhelming majority of respondents, while the largest individual prediction group, the 0% to 2.5% rise category, also contained the actual result.

Using the standard Dear Dairy midpoint methodology across the four polling ranges, the crowd implied an expected move of approximately +1.93%.

The actual increase of 0.9% therefore came in approximately 1.03 percentage points below the crowd's implied expectation.

That is an interesting result.

The market was not as strong as overall sentiment suggested.

But the audience correctly identified both the direction and the most likely range.

The DDI was also on the correct side of the market

Immediately before Event 411, the Dear Dairy Index stood at:

DDI 62 / 100

Bullish

Moderate conviction

The index had eased from 65 a week earlier.

That decline did not represent a reversal to a bearish view. Rather, it reflected increasing evidence that the rally was becoming uneven.

Event 411 subsequently rose 0.9%.

Directionally, the bullish DDI therefore remained correct.

After incorporating the latest GDT result and market developments, the Tuesday closing DDI remains 62 / 100.

Another positive GDT headline by itself is not enough to justify increasing conviction when the product composition underneath that headline is deteriorating.

And Event 411 contained some very significant divergences.

SMP is becoming the clearest bullish signal

Skim milk powder increased another 5.3% at Event 411.

That follows a 7.6% increase at Event 410.

Two consecutive moves of that magnitude are difficult to dismiss as auction noise.

Buttermilk powder also increased 4.6%, while lactose rose 2.0%.

The most interesting cross market confirmation is coming from the United States.

On September 1, CME Grade A nonfat dry milk increased to $1.90/lb.

So while many dairy products are struggling to maintain momentum, milk proteins are increasingly separating themselves from the rest of the complex.

For buyers who remain materially uncovered for Q4, SMP is therefore the product where I would currently be most cautious about waiting for a broad correction.

Fats are telling a very different story

Butter declined another 0.8% at Event 411 after falling 2.0% at Event 410.

AMF declined 1.3%, following an even larger decline at the previous event.

The United States is displaying an even stronger version of that weakness.

CME butter closed September 1 at $1.3925/lb, falling 5.75 cents in a single session.

This creates one of the clearest divergences in the current global dairy market.

Powders are strengthening.

Fats are struggling.

That is not what a uniform bull market normally looks like.

Cheese adds another warning

Cheddar produced perhaps the most significant negative result of the auction.

The GDT cheddar index fell 6.6%.

Mozzarella increased only 0.3%.

In the United States, CME cheddar blocks closed September 1 at $1.4750/lb, with barrels at $1.5325/lb.

Again, the picture is not one of universal demand strength.

This matters because a genuinely broad dairy bull market should eventually begin pulling multiple product categories and regions in the same direction.

We do not have that confirmation yet.

WMP also deserves attention

Whole milk powder declined 0.1%.

On its own, that is essentially a flat result.

But WMP carries substantial importance within the GDT complex.

A market where SMP rises 5.3% while WMP is almost unchanged is telling us something important about the nature of current demand.

The bullish signal is concentrated.

That does not make it unimportant.

It makes product selection much more important.

Europe remains firmer than the US fat complex

The latest official European Commission data continue to show a European physical market that recovered materially through August.

The latest official EU observations include butter around €4,040/MT, SMP around €2,910/MT, WMP around €3,560/MT and cheddar around €3,350/MT.

Our latest validated Kudron Market Indications also continue to support the view that European physical markets tightened materially through August.

However, I do not automatically advance a Kudron Market Indication simply because another Friday has passed.

A new public indication requires sufficient comparable current market observations.

That discipline becomes especially important when markets begin moving rapidly.

Is this now a bull market?

My answer is:

Yes, at the regime level. Not yet across every product.

Four consecutive positive GDT events are becoming increasingly difficult to dismiss as random volatility.

The Dear Dairy audience has also moved decisively bullish.

The DDI remains bullish.

SMP has now delivered two exceptionally strong auctions.

European physical markets improved materially through August.

Those are meaningful confirmations.

But a strong market thesis becomes dangerous when we stop looking for evidence against it.

And the counter evidence is substantial.

Butter remains weak.

AMF remains weak.

Cheddar just declined 6.6%.

WMP was essentially unchanged.

US butter has fallen sharply.

Milk availability is also entering a period where improving supply could begin testing whether the recent tightening can persist.

That is why I continue to describe the current environment as a bullish dairy regime with significant product and regional divergence.

The bullish case for the coming weeks

The bullish case is straightforward.

GDT momentum remains positive.

SMP is displaying unusually strong consecutive gains.

European physical markets tightened through August.

Some buyers returning from the summer period may still need Q4 coverage.

And once buyers begin worrying that they have waited too long, delayed purchasing can itself become a source of additional demand.

If protein markets continue strengthening while WMP begins participating again, the broader bullish case becomes significantly stronger.

The bearish case

The bearish argument should not be ignored.

Global milk production is improving in several important regions.

Weakness in fats is persistent rather than isolated.

US dairy markets remain highly divergent.

Cheese has now produced a meaningful warning.

And a large part of the latest GDT strength is being supplied by SMP rather than broad participation across the complex.

If SMP loses momentum while fats and cheese remain weak, the current rally could lose support surprisingly quickly.

What would make me change the view?

There are three developments I would take particularly seriously.

First, SMP momentum stalls or reverses.

Second, European physical markets begin falling rather than consolidating after the August recovery.

Third, weakness in butter, AMF and cheese begins spreading into the powder complex.

If those signals begin appearing together, I would expect the DDI to fall materially.

Until then, the market retains a bullish bias.

What I expect next

The next full GDT Trading Event is Event 412 on 15 September.

Between now and then, I expect the market to remain supported, but increasingly selective.

The most important question is no longer simply:

Will dairy prices rise?

It is:

Which parts of the dairy market can continue rising while other products remain under pressure?

For the coming week, I will be watching SMP first.

Then WMP.

Then the relationship between European physical butter and the much weaker US fat market.

If the powder complex continues strengthening despite improving supply, the case for a firmer Q4 becomes considerably stronger.

If powder momentum begins breaking down, the current bullish regime becomes much less convincing.

For now:

Dear Dairy Index: 62 / 100

Market direction: Bullish

Conviction: Moderate

The market has earned a bullish bias.

It has not earned complacency.

That difference matters.

Dear Dairy is the independent dairy market analysis series from Kudron Commodities. The Dear Dairy Index combines market benchmarks, physical market indications, market momentum, fundamentals and Dear Dairy sentiment to track changes in global dairy market direction and conviction.

Sources: Global Dairy Trade, European Commission Milk Market Observatory, and USDA Agricultural Marketing Service.

The GDT figures above are supported by the latest Event 411 reporting, while the CME cash closes are current for September 1.