Ongoing milk production in Europe is to blame for keeping global milk prices depressed, according to Dairy Australia.

Dairy Australia, in its February Situation and Outlook report says that prices are ultimately a function of the supply/demand balance, and while dairy demand hasn’t kept pace the real culprit is increased volumes of milk coming from Europe.

Southern hemisphere exporters are seeing milk intakes slow, with Australian December milk production back 4.6% on December 2014.

However, European milk production continues to rise – which Dairy Australia has said is seemingly impervious to global market influences.

It quotes the Milk Market Observatory that EU milk deliveries increased by 5.5% in November, the highest monthly increase in 2015.

Furthermore, the report says that with the northern spring flush just around the corner, the global industry is again seeing the prospect of a market recovery pushed back; now into 2017.

The continued production has cemented Europe’s place as the main source of the milk supply ‘problem’ for sellers in international markets, Dairy Australia has said.

Pressure is being maintained on prices due to a combination of extra supply and no access to the Russian market.

This, Dairy Australia has said, is even as El Nino impacts supply from Oceania.

The biggest contributions continue to come from northwestern Europe, with Ireland, the Netherlands and the UK together posting over half of the year-to-date gains (around 1.5 billion litres).

Current forecasts from the European Commission suggest full 2015 calendar year growth slowed to 1%, which Dairy Australia says it likely an underestimate, with a further 1% likely in 2016.

Given milk production in the first quarter of 2015 remained constrained by quotas, the report says it is highly likely that much larger year-on- year growth figures will be reported over the next few months.

Meanwhile the latest figures from the Milk Market Observatory show that the EU public intervention scheme is now over one-third full, just six weeks into 2016.

Some 37,000t of skimmed milk powder (SMP) has been offered to the measure in 2016.

Picture of the Australian cattle industry

Cull cow numbers in Australia, its ays, remain significantly elevated, which the report attributes to a combination of high prices for manufacturing beef, relatively cheap replacement stock, and continued margin pressures.

Sales for the 12 months to December 2015 were 49% higher than the same period year earlier, and 47% above the 5-year average, according to the outlook report.

Looking at dairy cattle exports, for the 12 months to October 2015, they totalled 86,487 head – 1% less than the corresponding period a year earlier.

Chinese demand for Australian dairy cattle has been hit by lower domestic milk prices and the opening of their market to live cattle imports from other origins. Some 83% of dairy cattle exports go to China from Australia.

Consequently, Dairy Australia has said that exports during the 12 months fell 7% compared to year-earlier, from 71,503 to 76,663 head.