THE global milk price is getting there, slowly. This was the message from Rabobank's Dairy Quarterly report which was released last week.
The report stated the slow recovery in international dairy prices, initially starting in August this year, did continue through the fourth quarter but failed to gain strong legs.
It said international prices were up between zero and five per cent since the start of the quarter.
Milk production in the big seven export regions, including Australia, New Zealand and the US, had fallen below previous year's levels by September and it was this contraction in milk supply, the first since 2010, that had caused some of the upward pressure on prices.
But the report indicated because the contraction failed to generate more of a price rally, consumption was likely to be weaker than expected.
"While cheese consumption in the EU continues to expand, deteriorating conditions appear to have started to take a toll on consumption of other product throughout the recent months," it said.
"Furthermore while dairy consumption is still rising in China and South East Asia, the rate of growth appears to have moderated."
Consumption was likely to continue its slow growth into 2013 but market fundamentals pointed to a tightening of supply heading into the new year.
The report said that Australian dairy farmers were experiencing tight cashflows with high feed costs and higher than normal energy costs, due to the introduction of the carbon tax.
Milk prices were also lower than the same time last year.
"At the end of October, national production was 3.4 billion litres, an increase of 1pc since last year," the report said.
"Output was higher in Victoria and Tasmania but milk production is tracking below last season in all other States."
The US milk production in October was also down, falling below year ago levels for the third successive month.
Domestic demand also looked less positive in more recent months than it had for the previous quarter.
"Weaker supply, and some domestic market growth, will leave the US with reduced supply for the world market in the first half of 2013," the report said.
The first half of this year saw favourable weather conditions for milk production in New Zealand which boosted production by 5pc through to November.
But the report stated that reduced feed reserves, lower milk prices and the low probability of ideal climatic conditions for the second year in a row, also pointed to a tightening of New Zealand milk production.
"Moving into 2013, export tonnages can be expected to fall below the prior year period," it said.
Rabobank expected the global market would be heading for a significant tightening in the first half of 2013 and milk production in the key export regions was likely to remain below previous year levels.
"While current buyer inventories will provide temporary protection from supply shortages, the market will inevitably tighten further if there is even a modest improvement in demand for imports from key buying regions, which appears highly likely," the report said.