The global dairy market has entered a rebalancing phase after a period of surplus generation.
The rate of price recovery would depend on the amount of excess stock accumulated during the first half of the year, the time it took supply growth to lose momentum and the prospects for any demand improvement, Rabobank's latest dairy quarterly said.
Dairy commodity prices fell through April and May before a small rally in June brought a 14-month bear market to at least a temporary end.
Prices were pushed down by exceptional supply growth in export regions, which generated more product than could be soaked up amid weak demand in Western markets and only modest growth in emerging markets buying imports.
Production growth in the "Big 7" export regions climbed to just shy of 4%, year on year, in both March and April.
Favourable weather conditions kept New Zealand milk production strong through to season's end. Supply was up 12%, year on year, in the three months to May.
The reduction of prices for the new season was likely to have little effect on production prospects in the first half of the New Zealand season, because farms had good feed supplies on hand, cows were in good condition and calving patterns were expected to be tight.
Early season production was likely to track slightly ahead of last year through the third quarter of 2012, weather permitting.
However, matching the stellar 2011-12 production comparables would be harder as the season progressed, the report said.
Another perfect autumn was unlikely and, with a lower milk price, the appetite to bolster production via purchased feed would be diminished as pasture growth slowed.
In the US, data for April and May continued to show the volume of liquid milk and yoghurt trailing year-ago levels in retail. Cheese sales were stagnant.
In the EU, processors widely reported depressed demand conditions, with the deterioration of the economy beginning to bite.
Sales in emerging markets were still generally expanding, though the rate of growth was uneven and appeared to be slowing.
Listed companies reported double digit sales growth in Vietnam and the Philippines in the January to March period.
However, sales growth appeared to be slowing somewhat in China, while companies reported declining sales volumes in Malaysia and Brazil as consumers responded to the steep price increases of late.
In the EU and US, marginal growth in consumption through the balance of 2012 was expected.
Demand would expand in emerging markets where consumers were still seeing strong wage growth and structural trends underpin rising dairy consumption.
But the rate of growth would be somewhat slower than in recent years, given slowing economic activity.
