A slowdown in milk production in Europe and South America will see dairy commodity prices recover at the end of 2016, the FC Stone International conference on risk in European dairy markets heard this week.

Commodity traders who addressed the conference, held in Dublin, said while commodity prices will lift, there will be little in the way of increases being passed on to farmers in the short term.

Olaf ter Bille head of dairy hedge trading with one the world’s largest commodity trading companies, Louis Dreyfus (LDC), said dairy commodity prices should recover this year but it would take longer for farmers to see those increases.

Ter Bille said that LDC is forecasting a reduction in European milk production in quarters three and four of this year by as much as 1.6%. He added that reduction in major milk producing countries is helping to reduce stock globally. Production in Argentina is down by as much as 16%.

He added that if the EU takes a further 50,000t to 100,000t of skim milk powder (SMP) into intervention that “this will clear the market to enable price rises”.

“I have good confidence that our figures are fairly accurate. Freely available stock is reducing and is getting quite tight. We are getting to the end of the bearish cycle and prices should improve in the fairly near future,” ter Bille said.

“That doesn’t mean that farmers get more; co-ops have subsidised prices for two years and they need to rebuild. A price increase for farmers would result in them stopping the culling of cows and the increase in production again … the market needs a break.”

When asked what he saw as the milk price for dairy farmers, he said highs seen in 2013 are unlikely to happen again.

“For SMP and cheese, the demand [from buyers] is there. We won’t go back to 40c/litre, but I can see a price of 30c/l to 35c/l being there if there is not too much more production from farmers.”

Other speakers at the conference included Charlie Hyland and John Lancaster from FC Stone as well as Dr Declan O’Connor from Cork Institute of Technology, who said that “we’re not in a period of dairy volatility; we’re in a period of low prices. When prices recover then volatility will return.”

Sascha Siegel head of agricultural commodities at EEX exchange, one of the largest commodities markets, said that more and more dairy products are being traded in the commodities market to help manage volatility. Volumes have grown from 2,600t of product in 2011 to a 35,000t forecast for 2016. Siegel said this will continue to grow as more processors sign up to initiatives such as fixed-milk-price contracts.