Farmers need to ‘make hay while the sun shines’ and not use higher prices as a driver for major investment.
It follows comments from Arla chief executive Peder Tuborgh warning of a cream and butter shortage at Christmas.
John Allen, Kite Consulting, has urged caution from farmers as demand drives up their milk price and told them to remember the price was likely to go back down again.
“With our clients we are saying be cautious,” he said.
“It is going to put prices up considerably. Take the higher prices, do not look a gift horse in the mouth.
“But use the money wisely. Do not use short term price hike as a reason for major investment. Take the profit which you need, rebuild your balance sheet and pay off debt,” he added.
He advised farmers to ‘lock in’ their feed prices now as these were beginning to rise to enjoy the full benefits of the rises.
Dairy analyst Chris Walkland said higher prices could halt the high demand for butter which helped to drive the price.
“Farmers need to make hay while the sun shines,” he said.
Shoppers have switched back to buying butter from margarine following research highlighting its health benefits in the media.
And he had limited sympathy for consumers and retailers when price increased as they had enjoyed ‘extremely good value’ dairy products while farmers suffered low prices.
But he warned major price hikes would drive manufactures to switch back away from butter.
“Manufacturers will substitute it for inferior vegetable based products,” he said.
“It could take three months or six months but it will happen at those sort of prices, the difference between those is five-fold. Prices will then come off the boil.”
But he added it did not necessarily mean retail prices would increase as retailers were making big enough margins on many dairy products to absorb the costs themselves.