Dairy markets are reacting negatively to building supply pressure across Europe

The last 12 months will generally be remembered by dairy farmers as a very good year.

Dairy markets began to recover rapidly from October 2016, so much so that by March, prices for spring milk were back on a strong footing.

The unprecedented spike in butter prices across Europe from May onwards added further upward momentum to farmgate milk prices right into the autumn months.

While consumer demand for butter is revitalised in recent years, the big driver of the record butter price was weak milk production coming out of Germany and France in the first half of 2017.

Dairy farmers in these countries were hit hard by the low milk prices the previous year and they were slow to recover their confidence.

However, the very strong milk prices in the second half of 2017 inevitably enticed farmers in Europe to produce more.

Since September, we saw rapid growth in German, French and UK milk production and this has had markets worried.

German milk production in October increased 5% year on year to 2.5bn litres, while French milk production was also up 5% in October to hit 1.9bn litres. UK milk production in October was up 4% to 1.15bn litres.

Dutch expansion

Even more alarming for dairy markets is the situation in the Netherlands, where milk production continues to expand, defying all expectations. October milk collection was up 1.6% to 1.13bn litres, while November collections rose 1.9% to just under 1.1bn litres.

A flush of milk is building in Europe and processors are expecting large volumes to come in the spring months.

FrieslandCampina has already written to suppliers urging them to reign in production for early 2018, as the co-op might not have the capacity to process all the milk.

After a very good year for milk prices, 2017 will close out with plenty of anxiety in dairy markets as supply builds and looks set to outpace demand once again.