This week's increase in prices at the Global Dairy Trade (GDT) auction may not have been as high as some commentators expected, Matt Johnson, Dairy Analyst with Rabobank has said.
But it does look like dairy prices will increase further towards the end of 2016, he said.
Dairy product prices increased by 1.4% at Tuesday's auction.
The main movers on the market were whole milk powder (up 2.9%) and lactose (up 5.6%), while skimmed milk powder prices fell by 0.3%.
Commenting on the current global dairy market situation, Johnson said that milk supplies are down but there's a lot of stock still unavailable on global markets, with many stocks in intervention and private storage.
People looking at it will see that milk production in the EU is down overall, there's less milk in New Zealand, less in Australia and it's continuing to increase in the US but they have a lot of milk going to domestic markets.
Coupled with a demand for products, this means there's less exportable surpluses of dairy products, he said.
The latest figures from Australia show that August milk production is down almost 10%, while in New Zealand August production fell 2%.
While a lot of EU stocks are in public intervention and private storage, global stocks continue to be of concern, with Rabobank estimating stocks to be 6.7m tonnes above normal levels.
Meanwhile, looking at the next six-to-12 months, Johnson said that a further tightening of milk supplies is anticipated and that prices will increase a bit further.
He said that more milk price increases are expected towards the end of 2016 and they look like they'll hold steady in 2017.
Rabobank's latest Dairy Quarterly report found that price recovery is being driven by falling supply rather than demand, and price increases will be limited by continued weak global demand and significant stock overhang.