Post-quota EU milk surge likely to exceed 10bn litres
Farmers in Germany, France, Ireland and Poland will produce a massive 10bn litres of extra milk between 2015 and 2020 once the quota shackles are removed.
The increase is equivalent to twice the amount of milk Ireland currently produces in a year.
But the huge wave of additional milk is not expected to crash the market, according to dairy analysts at Dutch firm Rabobank.
Speaking at the Agricultural Science Association (ASA) conference in Waterford on Thursday, dairy market analyst Matthew Johnson said EU milk production was likely to rise by 7-8pc between 2015 and 2020.
However, demand for dairy globally is expected to grow by 2.4pc per year and that growth would be dominated by developing markets that are milk deficit regions.
"Demand growth of 2.4pc would equate to around 13-14bn litres of milk so there is definitely scope for the extra milk to be soaked up," Mr Johnson told 350 delegates at the conference.
In the shorter term, Rabobank, which deals with 90pc of Dutch dairy farmers, is using a forecasted milk price of 33c/l in its projections but this is "being discussed avidly".
Mr Johnson said the bank expected "deflation" rather than substantial reduction in milk price in first half of 2014.
But the analyst warned that dairy farmers and processors needed to prepare for extreme volatility in milk price in the future.
"Butter prices were 42 per cent higher last month than they were 12 months previously, with SMP (skim milk powder) up 41 per cent, WMP (whole milk powder) up 34 per cent," he pointed out.
"Already this year we've seen a huge variation in dairy prices between the top and bottom. All players need to be flexible and cost management will be key," he told the conference.
He pointed out that concentrate feed costs have risen 85pc between 2001 and 2011, while fertiliser rose by 90pc and labour costs rose by 120pc.
He added that Irish farmers had a distinct advantage, being in one of the few areas in Europe where farmers could produce more than 9t DM/ha per year.
Mr Johnson said global markets were currently in the middle of supply side shock, with commodity prices at historic highs.
Milk supplies will recover throughout the second half of this year and into next year, with milk output from the world's big seven exporting regions – the EU, US, New Zealand, Australia, Brazil, Argentina and Uruguay – expected to grow by 2-3pc in the first half of 2014. However, Rabobank is still predicting prices to "deflate" rather than crash as supplies recover.
Post-quota, Mr Johnson said dairy companies would have to position themselves to take advantage of demand in milk deficit areas such as China, North Africa, Russia and former Soviet Union countries, or focus on more value-added activities in their maturing domestic markets.
Demand growth will be highest for infant milk formula, nutritional food and drinks, and health-related foods, with moderate growth in demand for yogurt and food service cheese. Demand growth will be slowest for retail cheese, liquid milk and butter.