Müller UK & Ireland Group has announced a further reduction to its standard farmgate milk price, which will fall by 1.2 pence per litre (ppl) to 25.9ppl from 10 January 2015.

The processor cited record farm milk volumes and continued weak demand as key reasons for the reduction, which follows 16 separate price cuts by large and small rivals – including Dairy Crest and First Milk – last week.

The UK processing sector was struggling to find added value markets for the “unprecedented” extra 1.2 billion litres of milk expected to be produced by farms by the end of 2014, said Martin Armstrong, head of group milk supply for Müller UK & Ireland Group.

And while Müller continued to make “strong progress in the UK” - and was investing to develop demand for British milk - returns from sales of cream and butter remained depressed, warned Armstrong.

Despite the latest cut, he said Müller would “continue to offer a leading farmgate milk price and our price from January reflects this commitment”.

The average minimum contract milk price paid by UK processors fell 22.9% between April and December, according to DairyCo statistics, from a high of 32.1ppl in the spring to just 23.9ppl in December.

Barring “a natural disaster” along the lines of a wet and cold late spring or an unforeseen disease outbreak, the scene was set for a “stainless steel busting UK milk output” for 2015, said dairy industry expert Ian Potter, who warned it would be a season “we are unprepared for” and could lead to a “dreaded distress milk” situation.

He suggested the short-term would continue to look gloomy for producers as, despite the investment in processing, there was “not enough spare capacity to accommodate all the milk during the peak production days”.

In the long-term the outlook for dairying was “very positive”, he added, but the 2015 outlook was extremely challenging and “would inevitably result in casualties at farm and processor level”.

He said the imbalance between supply and demand should correct itself by 2016, but “dairy price volatility is almost certain to return on a regular basis”.