An average milk price of $6.70 over the period 2017 to 2019 has been predicted in the annual Situation and Outlook for Primary Industries.
The report showed a forecast milk price of $5.62 for the 2015-16 season, reflecting a ''modest'' recovery in international prices and an assumed 5.4% depreciation of the New Zealand dollar.
Those price projections were subject to several uncertainties and risks, both up and down.
There were indications the Russian EU import ban might not be lifted, 12 months after it was imposed. However, a partial easing could induce healthy purchasing to restock in the short term.
Prices could recover earlier than expected if China's inventories of dairy products were lower than expected.
There was considerable uncertainty around the EU's production response following the end of milk supply quotas in April.
Estimates ranged from 0% to 8% each year over several years. Lower farm-gate prices in the EU might limit supply growth but it was also possible producers could cut prices, absorbing short-term losses as part of a longer-term strategy to gain market share in key future growth markets.
Emerging market consumption growth in developing countries might be lower than forecast, which could further weaken prices for commodity milk powders in the short term, in the absence of Chinese and Russian recovery.
New Zealand's total dairy export revenue was expected to be $14.2 billion for the year ending June this year, down 22% from the 2014 peak but 5% above export revenue in 2013.
In the short term, prices were likely to remain low, due to weak demand from China and Russia.
The global supply of dairy product remained strong in the short run, due to increasing production from the US and EU, which was a lagged effect of the record prices recorded in 2013-14, low feed prices and policy changes.
Global production had eased recently, as on-farm production responded to lower prices.
The long-term demand outlook was positive. The consumption of dairy products in China and many other Asian countries remained well below global averages.
Increasing incomes, growing urbanisation, relaxation of the one-child policy and a growing acceptance of dairy as part of the Chinese diet would all contribute to a predicted 30% increase in consumption by 2024.
Dairy export revenue was forecast to grow to June 2019 at a compound annual growth rate of 6.8%, primarily driven by increases in price, rather than volume.
The national herd size was expected to continue growing over the outlook period.
Milksolids production would fall next season as lower prices led to cutbacks in supplementary feed, but annual growth of 2% to 3% was then expected to resume.
