Dairy supply is expected to be abundant through early 2012 as the southern hemisphere works to clear the results of a strong season and milk production continues to outpace demand in the northern hemisphere.
The market might struggle to digest available supply in the first quarter of the year, bringing the prospect of a return to a modest downward trend in pricing, Rabobank's dairy quarterly report for December says.
The decline in global dairy commodity prices in train since March continued through the first half of the fourth-quarter, before signs of a modest rally in late November-early December.
Prices were weighted down by the continuation of strong supply momentum, weak demand in the northern hemisphere and light buying from China and Russia.
The later rally, amid an "outstanding" southern hemisphere supply season, appeared to have reflected increased Chinese buying and the lengthening of purchasing programmes from a range of importers to take advantage of the 15%-22% price falls from this year's peaks.
New Zealand milk flows were up 9% year-on-year for the three months to October, continuing a strong run of growth in train since March.
Producers across all regions enjoyed one of the best spring and early summer periods for many years.
The additional milk flow translated into a 9% expansion in third-quarter exports.
Increased tonnages were led by butter (up 22%), cheese (up 18%) and skim milk powder (up 9%) due to higher product returns and declining whole-milk powder shipments to China.
Local supply chain disruptions kept October exports 12% below previous year levels.
While milk flows would fall seasonally through the first quarter of next year, the platform was in place for a solid shoulder season, with good feed availability and cow condition.
The net 4% reduction in the forecast milk price for the season to $6.50 per kg of milk solids was likely to have little effect on growth over that period.
However, the rate of milk production growth was likely to ease to around 4% year-on-year through the first quarter, presuming normal summer conditions prevailed and the stronger year-ago comparables.
The supply would ensure good year-on-year growth in export volumes through that quarter.
