A leading milk processor admitted that the butter price cut had taken the sector by surprise. While he accepted that the dairy markets were quiet and buyers were continuing to "sit on their hands", he said no-one had expected prices to be pulled back to such an extent this early in the year.
He warned that the move could have major implications for milk prices through the key production months of March, April and May.
Michael Barry, of the Irish Dairy Industries Association, claimed that dairy stocks released from intervention to charities under the Deprived Persons Scheme (DPS) had hit market returns.
Close to 51,500t of butter and 65,000t of SMP has been released by the Commission under the DPS. The product is signed over to charities, who then sell it on to the market to secure cash funds for their operations.
"Although the product does not come out of intervention until May, and the volumes involved are small, the trade for it has already been done and these contracts act as price setters," Mr Barry said.
However, he insisted that the medium-term outlook for the sector was good. He said that demand in China was showing signs of recovery, despite continuing difficulties with melamine tainted product.
ICMSA president Jackie Cahill described the IDB move as the "most unwelcome start to the milk season that we could get".
Predicting that the outlook for the year ahead was "not bright", Mr Cahill described suggestions that milk prices would hit anywhere near 30c/l this summer as nonsense.
Meanwhile, IFA president John Bryan will reconvene the Dairy Forum today. The forum brings together the leaders of stakeholders in the dairy industry, including processors, various industry organisations and the IDB.
"My purpose in reconvening the Dairy Forum is to mobilise the entire dairy industry to form a common front to ensure that our Government and the EU Commission are clear that, for dairy farmers, the dairy crisis is not over," Mr Bryan said.
"Our plan is for the Dairy Forum to agree on a programme of issues of common interest to the entire industry, to be pursued together both at home and in Brussels," he added.
The IFA leader said that with farmers 4c/l short of breakeven point, it was critical for the EU Commission to support and manage dairy markets this year.
He called on the EU Commission to reinstate export refunds immediately, and to control intervention stocks with much greater sensitivity to their impact on the market.