As widely forecast, dairy markets are volatile and nervous as milk quotas are abolished across Europe.

The overall dairy price index was down 10.8% at Tuesday’s Global Dairy Trade auction (GDT) run by Fonterra. After an 8.8% drop at the previous event, the overall dairy price index is now back to where it started on 6 January.

New Zealand's most important product, whole milk powder, fell 13.3% to $2,538 per tonne, while skim milk powder was 9.9% weaker at $2,467/t.

In recent weeks the overall dairy supply demand balance had been boosted by the curtailment of March milk supply in over-quota European countries. France (-4.4%), Germany (-2.6%) Netherlands (-2.6%) and the UK (-0.9%) all reported reduced deliveries in their most recent data. Data for early April production will reveal how much of the supply reduction is due to lower milk prices.

Supply data will be closely watched in the coming weeks as the shackles are finally removed in the world’s largest milk production region.

Meanwhile, after raising their forecast price for March, Dutch processing giant Friesland Campina this week cut their April price by 75 cent per kg to 33.25 c/kg. This is 32.29 c/litre for high solids Dutch milk (3.47% protein and 4.41% fat).

They describe market conditions as “relatively stable due the lower milk supply from the expected quota overruns by dairy farmers in the EU”. However, they also report “sluggish demand for dairy products in different markets”.