Dairy suppliers enjoyed a mini price boom last month - but experts warn the longer-term outlook remains uncertain for the troubled industry.

A drop in supply from key EU-producing regions at the same time as drought affected New Zealand contributed to higher Global Dairy Trade auction prices. Butter prices rose 12% on January levels to £2,500/tonne, with the bulk cream market up 19% to an average of £1,170/tonne. Prices for skimmed milk powder also rose, up 19% to £1,700/tonne, with the upturn also sending mild Cheddar prices up 11% to £2,450/tonne [AHDB/DairyCo 1 to 26 February 2015].

Countries including Ireland, the Netherlands, Germany and France had “pulled back” on production during February, said DairyCo senior analyst Patty Clayton, on the back of the threat of a European superlevy.

Increases provided short-term relief to suppliers following months of price drops, but a subsequent fall-off in demand at the end of February illustrated the continued instability in the market. “As soon as the buyers started coming back that sentiment snowballed,” said Clayton. “But most short-term cover has now been secured and buyers are hesitant to enter long-term deals.”

Whether milk prices would stabilise depended on the spring flush, and how production levels would pick up after the EU milk quota was phased out at the end of the month, Clayton added. “This February increase could be seen as a bubble, and we don’t yet know what the longer-term outlook will look like.”

Producers were “cautiously optimistic” prices were on the up, said Michael Masters of Dairy Crest Direct, which represents the 1,100 farmers who sell milk directly to Dairy Crest. “The February surge was a useful increase, albeit from a low level. So much now depends on the post-quota environment.”