Dairy market forecasters are warning that bakers can expect a sharp increase in dairy prices over the next few weeks and throughout the summer as global prices reach an all time high.

Market prices for commodities such as butter and especially milk powders have increased by 30-75% over the past six months, can industry source told British Baker.

Drought conditions in Australia and New Zealand also caused milk production to fall by 10% last season and is predicted to be down a further 30% next season.

This is one of many contributing reasons for the recent price hikes, which have seen milk increase from 18p a litre to 25p in just six weeks.

Global intervention stock levels, which are normally used in times of shortages to keep prices at a reasonable level, have already been exhausted, says the source.

Milk processing businesses are diverting more milk back towards the commodity products, where the current returns are greater than those from foodservice and retail products like fresh milk, cream, yoghurt and cheese.

To avoid creating an imbalance in the market, all dairy-based products will have to undergo price increases.

Dairy commodity product prices and milk prices paid to farmers have been rising over the past six months, says the source. But dairy manufacturers have absorbed these rises by taking a cut in margins.

Now, however, price hikes are unavoidable for manufacturers, who are being forced to past these costs onto end users, such as bakery companies.