Milk output slipped to a five-year low in the first month of the new milk year, leading some observers to speculate that July’s third tranche of EU dairy support cuts may not have as much impact on ex-farm prices as was initially feared.

Dairy farmers delivered 1.19bn litres of milk to buyers in April as the long, cold spring kept cows indoors and grass thin until the middle of the month.

Although the first cuts of silage are being taken in the south west of England, the spring flush only began in earnest at the end of April, according to Charles Holt of the Farm Consultancy Group.

April butterfat content was the highest since 1998. But even after adjustment for that, the month’s production amounted to 1.2bn litres, nearly 46m litres short of the Charles Holt/Farmers Weekly quota profile.

Mr Holt said:

“Cows are milking much better now, but I’m not sure it will be enough to get to quota.”

The extra 0.5% quota volume allocated to farmers this year by Brussels has lengthened the odds and helped to keep quota values at rock bottom.

Clean 4% supplies are leasing at about 0.4p/litre and selling for 3.8p-4p/litre.

Gwyn Jones, chairman of the NFU dairy board, said national production was declining in line with predictions outlined in the recent Colman report, down 1bn litres by 2007/08.

He reckoned the cut to intervention rates in July should not hit farmgate prices.

“I don’t think intervention price cuts and milk prices are connected.

Last summer there were cuts but prices stayed up; the market decides.”

It was important not to ramp up production unless there were buyers, he added.

“The last thing we want is a lot of milk sloshing around.”

Nick Holt-Martyn of the Dairy Group consultancy agreed, saying the average milk price had been relatively stable over the past two years at about 18.5p/litre.

He predicted more of the same, because commodity products were now a marginal part of the milk market.

“Milk use in products other than liquid and cheese has fallen 1.2bn litres since August 2003.

Part of this has switched to cheese, and part lost to the fall in milk production.

Butter and cream values are most at risk from support price cuts and they should only have a marginal effect on the UK market.”

Independent milk consultant Mike Bessey said that the industry should not assume that milk output would fall to last year’s low levels, which saw deliveries come in 2.5% below quota.

And a shift from skimmed milk powder towards cheese production could begin to undermine cheese prices, he added.

“Cheddar production increased 10% last year, but there is no way the market has grown that much.”

However, cheese production has slowed in the first part of this year, with manufacturers wary of flooding the market.

sam.fortescue@rbi.co.uk