The wholesale prices of key bakery ingredients, such as butter, cream and skimmed milk powder, are on the rise as demand puts pressure on supply.

According to data from DairyCo, December milk deliveries in the UK showed a year-on-year growth of 2.3%, but much of the extra milk is being converted into cheese, rather than butter and other dairy products. In the first 11 months of 2010, UK output of cheese rose by 3.2%, whereas butter only rose 0.6%. As a consequence, the wholesale price of butter rose significantly in January, up from £3,000 per tonne the month before to £3,200. This compares to £2,700 per tonne a year before.

Skimmed milk powder (SMP) saw a rise from £1,900 in December to £1,950 in January. A year earlier, SMP was trading for £1,750 a tonne. Meanwhile bulk cream prices also saw an increase hitting £1,470 a tonne, up from £1,450 a month earlier and £1,130 a year before.

DairyCo said that the markets were anticipating further increases over the weeks ahead for butter and SMP.

In the EU, butter prices increased by between E100-200 per tonne in January, while SMP and whole milk powder prices rose by a similar amount.