Pressure will continue to build in global dairy markets due to waning market demand which is expected to continue into the final quarter.

That was the gloomy outlook from the latest RaboResearach report, Dairy Quarterly Q4 2017 – Rising Tide of Milk Weighs on Sentiment’ which points out that the increase in milk supplies is now affecting prices.

“Growth in milk supply – which turned positive in Q2 2017 – accelerated in Q3 2017, but the growth in the exportable surpluses has not come without its challenges,” said Michael Harvey, senior dairy analyst at Rabobank.

“Growth in the global exportable dairy surpluses will continue to expand in the coming period, pressuring global markets.”

Backing up these statements, the last Global Dairy Trade (GDT) event of 2017, resulted in a 3.9% decline in the price index from the previous event. The average weighted price of all products was US$2,969/tonne – almost 20% below the year-ago average price of US$3,656/tonne.

Performance across the last year has been split between fats and powders. Butter and AMF prices rose substantially in the first half of the year, in line with global fat shortage, but have been declining since around September.

The latest butter average price is only 4% above a year ago, but AMF remains 19% higher than last year. Cheddar followed a similar pattern, but with a lower rise and with the latest average price now 11% below a year ago.

Powders, on the other hand, spent most of the year in decline. The latest average weighted price for WMP is down 23% on a year ago, with the SMP average price down 36%. Together powders make up roughly three quarters of product sold, so this has weighed on the all-product prices and been the main driver behind the general downward trend over 2017.

According to AHDB Dairy, prices in the New Year could be influenced by how New Zealand is affected by its season of mixed weather, as monthly production there is currently ahead of last year, with November production up 4.2% on the year. However, a slow start to the season means that Fonterra, the dominant milk buyer, is currently forecasting no change in production between 2016/17 and 2017/18.

The levy board also highlighted that while EU milk production has increased, EU28 deliveries from January to October 2017, were only 0.28% above where they are expected to be given historical growth.

EU milk deliveries in 2017 are nevertheless showing stronger growth than in 2016, based on a tracker of the last three years which provides a baseline for comparing whether actual production is rising or falling as expected. With this tracker, deliveries are 1.5% above where we would expect them to be.

This is a comparison to an artificially low period of production. The milk reduction scheme that ran from October 2016 to January 2017 offered financial incentives to farmers across Europe to slow production and brought volumes over the period down by over 1,467m litres, compared to the same period the previous year.

If the tracker is based on the three years before the milk reduction scheme ie. 2013 to 2015, production is only 0.28% above where AHDB Dairy would expect, equivalent to about 1.2m litres per day.

Defra has also revised UK milk production figures for the September to October 2017 period with October figures now reported to be 1,155m litres which is in line with the AHDB estimate and a 4.2% increase on October 2016.