While the long-term outlook for dairy demand remains strong, milk price in the short and medium term will come under pressure, according to Joe Collins, head of ingredients and trading at the Irish Dairy Board (IDB).

Speaking at the company’s results briefing in Dublin yesterday, he warned: “It looks like a tough enough second half, or even last three quarters. Supply is now running well ahead of traditional demand. The replenishment phase has been completed and stocks are now building.”

There are concerns around Russian cheese imports in the light of the current political tension, as well as concerns that powder imports to China may weaken as domestic supply recovers.

“All we can do is hope that a weather event in some part of the world will oblige and restrict supply,” he said. “Other than that, the only other signal that will reduce supply is price.”

Yesterday’s quotes from the Dutch Dairy Board showed a further 1% to 3% weakening in powder, although butter remained stable at €3,520/t.

Meanwhile, after three sharp falls in price since mid-February, the Global Dairy Trade (GDT) auction of dairy commodities this week was down by just 2.6% to $4,047/t.

That was for 36,549 tonnes of product sold on contracts to be delivered from June to October 2014. Whole milk powder (WMP) fell by 1.6%, putting it below $4,000/t for the first time since early 2013.

Skimmed milk powder was down by 4.4% to $3,969/t and butter dropped by 4.9% to $3,832/t.

The price for anhydrous milk fat (AMF – butteroil) held up at $4,086/t, but cheddar fell another 3.3% to average $4,273/t.

Prices in Europe have been slipping gradually in recent weeks, but nothing like the 20% drop in GDT returns.

Nearer home, spot market prices for milk in England have dropped to around 23p/litre as milk production runs sharply ahead of last year in UK. March milk output was more than 12% above the same month of 2013.

UK production for the quota year, at an estimated 13.67 billion litres, was up by 5.4% on 2012/2013, but still more than one billion litres below quota. The UK would have to produce almost 12% more milk in 2014/2015 to fill its quota. Producers taking insurance against superlevy have pushed the price of quota purchase to 2p/litre from under 0.3p/litre a few weeks ago.

* The EU commissioner for agriculture Dacian Ciolos launched the new Dairy Market Observatory yesterday. It will provide a wide range of raw data, as well as analysis to show transparency on the dairy market situation.