Dairy farmers may well opt to pay back debt, rather than chase extra litres, on the back of the recent upturn in milk prices, according to AHDB Dairy Market Analyst Luke Crossman.
If this happens it will act to keep a lid on milk output across Europe over the coming months, he said.
“This, in turn, will serve to maintain pressure on milk output, thereby forcing buyers to further commit to the market. We are now seeing significant reductions in EU milk output, even in Ireland.”
AHDB analysts are now predicting that EU dairy markets will continue to strengthen right through to next year’s spring flush.
“This will take us through to next May. What happens after that will depend on a number of factors.”
A strong flush of milk coming onto the EU market next year could serve to weaken prices again.
“But if weather or other factors act to keep milk output levels constrained, this will have a strengthening impact on international markets.”
Crossman also said that China is, once again, demonstrating an active engagement on world dairy markets.
“This is adding to demand and the fact that the United States is putting very little product onto export markets is helping to boost international market sentiment.
“Prices for butter and cheese have been exceptionally strong in the US over recent months. As a consequence, dairy processors have had no reason to source international outlets for their produce.”
Crossman said that AHDB’s new Forward Market Performance (FMP) indicator is pointing to an average EU milk price for January in the region 36c/L.
“The aim is to provide some indication of what those trading futures believe the supply and demand relationship could be over the coming months,” he said.
“We are using EEX futures’ prices in our calculations, which have a strong German focus. But all our work is clearly showing that demand will outstrip output over the coming months.”