For many months, dairy markets were strong and prices defied Brussels’ best efforts to bring internal market levels lower. Cuts in export and other subsidies and the sale of cheaper product out of intervention stores failed to bring much response from the normal markets for fresh products. All that is now changing.
Prices of bulk butter, where the support price cut last year was 7%, have moved sharply lower from a premium over the current intervention price of around 10% and, as shown in our graph, have fallen by 6% since early January to little more than the intervention price of E2,747/tonne (£1,895). Intervention does not open for the season until March 1, but some makers are already planning to sell some product into public storage as soon as possible. With skim milk powder, the fall in prices has been more dramatic as markets were short of fresh supplies before Christmas and quotations rose to levels as much as 12% above the post-July intervention price.
In the past six weeks, prices are back down to the equivalent of the intervention price, currently at E1,952/per tonne (£1,345) for human food grade. There will certainly be early sales to intervention.
Prices in the UK are falling in line with those on the continent, although cheese prices are little affected.
The question being asked is whether the second round of intervention price cuts on July 1 this year - of 7% for butter and 5% for skim milk powder - will be translated more quickly into lower market prices.