Rabobank cautioned against expectations of a sustained recovery in dairy prices, which showed a strong rebound at a benchmark auction this week, saying demand had yet to catch up with production.
There were signs of a slowdown in the run-up in milk production which has transferred power to buyers' hands, sending prices at the globalDairyTrade auction last month to their lowest since August 2009.
Southern hemisphere producers, including top-ranked dairy exporter New Zealand, have entered the lower-output winter months, while in the northern hemisphere "European Union and US milk flows have reached, or recently passed, their seasonal peak".
'Inventories are building'
However, "the global market is taking some time to digest the additional production volumes" from a period of bumper output, which in New Zealand grew by 11.5% in the first three months of 2012, industry data this week showed.
"While intervention buying has not occurred, inventories are building in the northern hemisphere," Rabobank said, noting that in Europe, 80,000 tonnes of butter had been offered to an EU-assisted storage programme, up nearly 30,000 tonnes year on year.
In the US, stocks of non-fat dry milk were 54% higher at the end of April than a year before.
"It is likely to take a few months before markets balance… before the prospect of market tightening will appear on the horizon."
Price rebound
The comments follow a recovery of nearly 14% in dairy prices at the latest globalDairyTrade auction, which is run by New Zealand dairy giant Fonterra, but carried product from external groups such as Nordic-based Arla and US-based DairyAmerica too.
The rise in prices was the third in 11 events so far this year, and the strongest increase since September 2010.
Prices of the second-in contract for anhydrous milk far soared 44%, while skim milk powder lots rose by an average of 21%.
The decline followed a cut to less than 28,000 tonnes in volumes of product on offer, including a reduction to 18,000 tonnes, from 25,000 tonnes, in the whole milk powder volume.
'Bracing for a fall'
Dairy farmers in Australia and New Zealand, where the 2012-13 milk production season began this week, are "bracing for a fall in farmgate" prices in the new season, as the drop in global values filters through, Rabobank added.
For dairy farmers in Australia's important southern production areas, opening prices will come in at about Aus$4.05-4.40 per kilogramme of milk solids, down from an opening price of Aus$4.90 per kilogramme of milk solids for 2011-12.
Farmers actually look set to receive Aus$5.44 per kilogramme of milk solids for 2011-12.
Fonterra last month revealed a milk price forecast for 2012-13 of NZ$5.50 per kilogramme of milk solids, down from, NZ$6.05 per kilogramme of milk solids for the newly-finished season.