UK milk production for December 2018 is expected to hit 1,040 million litres, eight million litres ahead of last year, according to AHDB Dairy.
If the figure is confirmed it would be the highest for more than two decades and should push back fears of a winter milk shortage as a knock-on from dry conditions in mid-2018.
The levy board is forecasting that production will achieve parity with year-earlier levels through January 2019, as higher feed costs and lower milk prices put downward pressure on yields.
Virtually all UK dairy processors dropped farm gate milk prices for the start of the year, with Arla UK, Muller, First Milk and Dale Farm all reducing.
Production forecasts for February and March have been revised downward, according to AHDB Dairy, also moving the 2018-19 total production back in line with year-earlier levels.
Total milk production between April 2018 and March 2019 is now expected to be just one million litres behind 2017-18 levels at 12,409 million litres.
Spring milk production is predicted to be slightly up on last year, despite predictions that the UK milking herd will be 1.8% below its level in 2018.
The forecast production increase is a result of better yields combined with an expected return to more normal weather conditions.
The levy board thinks production will pick up through the spring, exceeding year-earlier levels between April and September 2019 by 0.6% at 6,325 million litres.
Historical calving insemination decisions and shifting calving patterns will have the greatest effect on production across this period.
GDT bouncing back
This week’s Global Dairy Trade auction, an indicator of international market sentiment, continued its recent revival, up 2.8%, further consolidating the bullish tone in the market.
All product groups pushed higher as the overall index recorded its third positive auction in a row following 12 consecutive negative results.
There were strong results for the auction’s most traded commodities, whole milk powder (WMP) and skim milk powder (SMP).
SMP leapt 7.9% to average $2,201/t (£1,753/t) while WMP increased by 1.2% on the fortnight to an average price of $2,705/t (£2,154/t).
The auction index has now increased by 7% in the past six weeks, after losing 21% of its value since 15 May 2018.
Expert analysis: INTL FCStone senior commodity analyst Peter Meehan
Despite the volume of trade activity being somewhat thin over the Christmas period, dairy market prices continued their move to the upside.
The European skimmed milk powder (SMP) quotations have now seen 10 weeks of gains in the past 11 while SMP futures markets also continued to trend higher.
Although European butter futures saw solid gains over the past couple of weeks, the European butter quotations have been a little more mixed.
European milk supply data showed German and French production was down 0.5% and 3.7%, respectively, in October while Dutch production fell 6.8% in November.
Milk production in the US and New Zealand meanwhile remained positive in November, up 0.6% and 1%, respectively, on last year.
New Zealand export data for November showed whole milk powder (WMP), SMP and infant milk formula (IMF) exports all increased sharply on last year.
A big increase in powder exports to China drove New Zealand’s dairy exports higher for the month.