Ornua – formerly the Irish Dairy Board – has forecast that EU milk intake will be down by as much as 1.8% in the first quarter of 2015, as lower milk prices, superlevy concerns and less favourable weather conditions combined to reduce output.

France and Britain were not limited by quotas, yet milk output has declined in those countries. French flows were down over 3% in quarter one and approximately 5% in recent weeks, as farmers react to lower milk prices.

The weak euro, while positive for EU exports, has pushed up the cost of US dollar-dominated input, such as feed and fertilizer, thereby increasing the breakeven point to levels above current market returns.

For those countries which had been over quota, output has increased. However, indications are that flows from 1 April are up only marginally in key regions such as the Netherlands and actually continuing down in Germany at 2.8% less than last year.

Irish supplies are strong but are reported to be less than expected. Joe Collins, head of ingredients and trading with Ornua, said that it is important that Irish supply is put in context, as it only accounts for less than 4% of EU milk and less than 1% of world output.

“A 5% drop in French output equates to a 25% swing in Irish supplies,” he said. “Buyers who have stepped back from the market in anticipation of higher output and lower prices in quarter two may be surprised at the level of availability when they wish to cover short requirements,” he said.

He added that buyers must also note farmers will not produce milk below cost for sustained periods. There will also be increased export interest as the weak euro makes EU product very competitive against Oceania and USA-origin offerings while presenting good value to customers and markets such as MENA and China, etc.

“The slowdown in Europe in the first quarter has coincided with lower output in New Zealand and South America, and slower growth in the US. As a result, world milk flows in Q1 are expected be down about 0.5% – well below world consumption growth of circa 2%.”

Meanwhile, in their results announcement on Tuesday, global dairy giant Danone forecast “lower milk prices in Europe and the United States in the first half, with a rebound likely in the second half of the year”.