Not so long ago, prospects for milk producers were looking up. But cuts in farmgate milk prices are serious and will leave farmers believing they can’t trust the market.

A devastating round of cuts initiated by Dairy Crest and followed by others will see 2p per litre slashed off milk prices.

It reduces the processor’s standard price for 575 producers to 26.61p/litre – an estimated 3.7ppl below the cost of production.

Robert Wiseman Dairies and Arla reduced their prices by the same amount within days of the Dairy Crest announcement.

All three companies claim market pressures on their business mean they have no alternative but to slash the amount they pay farmers.

But the price cuts are all the more devastating because so many producers are locked into contracts they can’t get out of.

How is it fair that a farmer is forced to sell milk for 7% less than the agreed price?

Reaction on Twitter this week was largely sympathetic to farmers’ plight, with some well-meaning people suggesting producers should withhold their milk.

But that is impossible. After all, milk is a perishable product.

Besides, where would it be stored? Few if any farms have the capacity to store milk for more than one or two days.

The price cuts overshadowed the upbeat findings of DairyCo’s 2012 Farmer Intentions Survey – unveiled at this week’s AHDB Outlook Conference.

Conducted in March, the optimism uncovered by the DairyCo survey has been replaced by a more sombre mood.

The survey shows one in three British dairy farmers intended to expand milk production over the next two years – the highest proportion since 2008.

It was seen as a vote of confidence by producers in the outlook for both the industry and their own farm businesses.

Farmers intending to leave the industry in the next two years had also fallen to 7% – a marked contrast to the 22% when the survey was first carried out in 2004, and a drop from the 13% who said they were intending to leave last year.

But the global dairy market situation has changed in the few short weeks since the survey was undertaken.

It’s a classic case of economics, with strong supply and weakening demand causing dairy wholesale prices to fall.

We have now seen this translating through to farmgate prices, says DairyCo analyst Julie Macleod.

So while farmers have given a vote of confidence for the medium-term outlook, they face a challenging year.

Loss of confidence or not, two survey findings remain pertinent. High input costs and low milk prices were among the top threats pinpointed by farmers.

Managing these issues will be challenging for the foreseeable future.

An edited version of this blogpost was published in Farmers Weekly magazine on Friday, 4 May 2012.