Rising output and slack eastern sales threaten EU dairy product market
They said milk output is on the rise in France, Germany, Holland and eastern Europe, and expected growth in consumer demand for dairy products in the new member states has failed to materialise.
EU milk trade prospects had also been hit by Russia's block on imports from new member states, on the grounds of inadequate hygiene standards.
ZMP predicts EU butter exports falling, because world demand has dropped, in response to high prices.
The butter intervention ceiling of 60,000 tonnes could be hit, forcing the European Commission to suspend buying, or accept lower priced tenders, warned the German agency.
But they did not expect the skimmed milk powder intervention ceiling to be breached; instead, ZMP predicted a strong SMP market later this year. But the overall ZMP forecast for the EU average milk price is a fall of at least 0.5 cents/litre this year, which could become 1 cent/litre.
Other market analysts widely predict reaction to the European Commission's embarrassment that dairy product markets largely ignored their drop in intervention prices after July, thus invalidating the dairy compensation payments to farmers that were part of the mid-term review.
Irish Dairy Board head Dr Noel Cawley warned, "The EU Commission will not pay on the double, and they certainly won't keep paying compensation for a drop in milk price if the price of milk is not decreasing. Ireland is one of the few EU countries that did not see a drop in milk price last year."
However, farmers can take heart from a drop in dairy product supplies from Australia and New Zealand. This could lead to world prices rising and a repeat of last year's heavy exports out of the EU, even if EU export subsidies are cut.
Last week the Commission's Dairy Management Committee reduced casein aid by 52% and whole milk powder (WMP) common export refunds by 6%.
IFA dairy chairman Michael Murphy said it was not unexpected, and its impact would yet be softened by market and currency factors. "Casein prices remain extremely strong, and Irish co-ops exporting casein have had one of their best ever years in 2004. Many were still manufacturing casein in January in anticipation of a possible later aid cut such as that announced yesterday," he said.
He predicted that the maximum intervention limits of 60,000 tonnes of butter and 109,000 tonnes of SMP will not be reached.
"It would be too simplistic to use the casein aid cut as an excuse to talk down milk prices, and producers will not tolerate this from their co-ops," he said.
"Last year there were numerous predictions of massive price drops," he said, "but the market defied all of them and prices held. We are moving more towards world prices now and will be pulled further towards them over time, but when it will happen no one knows," said Mr Murphy.
ICMSA president Pat O'Rourke has said if nothing is done at political, processing or marketing level, we will see a significant drop in price.
