While supply concerns have been the main driver of strong commodity pricing for several months, demand is now getting more attention.

This is despite the fact that supply has probably deteriorated with the heatwave sweeping through Europe.

Indeed, despite a weak supply outlook, futures eased in recent weeks largely due to demand concerns.

However, despite the supply pressures and question marks over demand, most are suggesting a major price correction is not on the agenda any time soon.

To tackle supply first – Rabobank this week published a report on the challenges on the supply side. The quick summary for the key European dairy countries is that issues with sustainability, animal welfare, biodiversity, artificial nitrogen and climate are all dominating supply chains.

Cost of production is higher in all countries. The retail price of dairy is increasing, so, in general, there is uncertainty in markets and this is softening some of the key dairy commodities.

Butter markets are weaker, but concerns over supply and strong cream exports continue to support pricing.

Cheddar demand is also a little weaker, but the experts say tight availability should support the market. Skim milk powders have stabilised in price after falling.

The high cost of production is biting hard across the water. A National Farmers Union (NFU) survey of 600 dairy farmers suggested 7% will have stopped milking by 2024, with another 15% considering to stop milk with concerns on feed, fuel, fertiliser and energy prices top of the list.