MILK prices may have returned to some sense of normality, but the sector is far from out of the woods as another major set-back may be imminent.

The warning came from industry analyst Ian Potter addressing the South Wales Dairy conference, where he highlighted the problem of EU intervention stores bursting to the seams with milk powder.

According to Mr Potter, only 40 tonnes out of a total of 355,000 tonnes nearing its 'best before' date had been shifted. If it couldn’t be moved as aid, it would soon be hitting the open market. His concern was that some processors could use this as an excuse for bringing prices down on April 1.

“Spot prices are back 35% in two months and bulk fresh cream has dropped 25%," noted Mr Potter. "Dairy markets will keep falling if this milk price keeps flowing as extremely as it does.”

After speaking to prominent dairy cow auctioneers, Mr Potter said farmers had accepted that price volatility was here to stay, and many were now seriously considering getting out while cow values were higher.

“When values were around £750 a head – just £100 to £150 above the cull value – they wouldn’t sell, but values are up around £300-£350 to around £1100 now, and this is encouraging many to consider quitting," he reported. "Others only just managed to keep afloat, particularly when prices dropped below 20p per litre, and it is now clear terminal damage was done.

“The feeling is that significantly increased herd values will result in some going into early retirement, or at least hanging-up the clusters, especially those with no one following on. That last price slump went beyond the feeling among many farmers that quitting was in some way letting the family down. Many sons and daughters witnessed what their parents went through, and they don’t want to go through it themselves.

“The good news is that if this is going to be the direction of travel, at least the farmers involved have control of the situation and their destination, rather than waiting for crippling prices to force a decision on them."

On the price front, Mr Potter said he hoped lessons were learnt from the last slump and that farmers don’t have short term memories as to what happened, especially with regard to how their milk purchaser treated them.

"Now that prices are knocking on the door of 30ppl, please think twice before you swallow the idea that putting on extra cows will automatically translate to a better lifestyle, even though it is in a dairy farmers nature to expand," he advised.

“For those who remain in the industry what is needed now is discipline. Most of you have ruthlessly reduced cost and maximised milk from grass, so don’t throw that knowledge and experience to the wind now that milk prices have increased – use them to regain lost income and start to build a war chest for the next big downturn. It will come sooner than you expect, it will hurt, and it could easily be another three year slump."