Dairy commodity prices have generally eased over the past month, pulling the Dairy Group’s market price equivalent down by 0.25p/litre, to 28.7p/litre in April.

However, that is 1.6p/litre higher than at the same time last year, and the prognosis remains strong, says director Nick Holt-Martyn.

“The market fundamentals are still sound, with dry weather starting to limit the spring flush in the EU. Globally demand is stable, so the market is largely driven by supply sentiment, which is stable.”

As recent milk prices rises feed into the rolling milk average, the gap between market returns and farmgate prices will start to narrow, he adds. “The prognosis is for settled markets through most of 2011 until the next southern hemisphere production season is well under way. This should mean there will still be room for more farmgate price increases as the higher market returns feed back.”

Higher feed costs wiped out the 1.4p/litre average increase in milk price in the year to January, but producers improved technical performance to boost average margins by £13 a cow.