Milk production is starting to pick up, but is likely to remain well below last year’s levels, according to Nick Holt-Martyn at The Dairy Group.

“With good quality grazing not far ahead, production is likely to hold on better than previous years,” he said. “But what can’t be corrected is the accumulated deficit, so the forecast is not a recovery to the 2011-12 level (13.5bn litres), but a resumption of the norm of 13bn litres.”

Volatile global supplies were encouraging more producers to sign up to formula pricing, based on the Actual Market Price Equivalent (AMPE), said Mr Holt-Martyn.

“This is a great concern. Although today AMPE is 38.6p/litre, only 12 months ago it was 22.1p/litre. In a post-quota EU if a 1bn litre swing in New Zealand production can trigger a 16p/litre rise in AMPE what will be the effect of a 2.5bn litre rise in EU production?”

The Dairy Group’s Market Price Equivalent increased by 0.17p/litre in May, to 32.04p/litre, with cheese markets rising against falling butter and whey values. “The 4.5p/litre range across the sectors is not sustainable, so prices will need to converge.”

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