There are mounting fears that the recent volatility in global dairy markets could stall the recovery in farmgate milk prices ahead of the peak supply months. Last week’s drop of 2.8% in the Global Dairy Trade was compounded by a sharp fall in Dutch spot prices.

Butter quotes on Dutch spot markets have fallen 6% or €340/t in the last fortnight to €5,610/t. Meanwhile, skim milk powder and whole milk powder are back 8.5% and 8% respectively over the last month.

While industry actors struggled to pinpoint the exact causes of the recent price drops, they explained that the milk price recovery of the last five months was primarily a function of reduced supply rather than increased demand.

This meant that the higher prices were “soft” and susceptible to a shift in market sentiment.

Tepid

One processor source described the current market as “tepid and bearish. A while back the price of butter would have had to start with a six in it, but now you’re talking €5,500/t.,” he said.

“The only thing saving us from last year’s prices is supply. Nobody is selling, nobody is buying.” While he insisted that a collapse in milk prices was not imminent, he said returns to farmers were likely to plateau at current levels.

Another dairy sector official questioned if a “game of chicken” was being played by commodity buyers and sellers.

“Everybody knows that buyers have no cover and will have to do something at some stage; they’re just not doing it yet,” he said.