Following yesterday’s positive Global Dairy Trade (GDT) auction, New Zealand bank ASB has said that the rebalancing of milk supply and demand still has ‘some way to go’.

Dairy futures markets had pointed to a negative auction however, dairy product prices rose 2.1% at the latest auction.

Skimmed milk powder (SMP) and whole milk powder (WMP) were only marginally up, while AMF and cheddar posted higher positive results (6.7% and 10.5%), reversing recent weakness.

According to ASB, near-term price recovery is likely to remain modest, with rebalancing of supply and demand still having some way to go.

The bank forecasts globally-traded dairy prices to gradually trend up over the coming season as New Zealand and European production respond to the current low prices and as Chinese import demand recovers.

It continues to expect that the 2016/17 season will ultimately finish up at $6.00/kg (€3.58/kg).

However, it anticipates Fonterra’s initial forecast for the season, to be announced in May, will be closer to $5.00/kg (€2.99/kg).

ASB Bank maintains that a key part of future price recovery is a supply response to the current low prices.

New Zealand production will remain responsive, and it has forecast for it to be weak again over the coming season, while adjustment will also gradually occur within the EU.

Earlier this week, ASB said that EU dairy production is showing tentative signs of tapering off after initially surging sharply when production quotas were removed a year ago.

Meanwhile, it also anticipates the Chinese import demand to gradually recover.

In addition, ASB expects next season’s NZ$/US$ conversion rate to be more favourable than that for the current season.

It maintains its 2015/16 and 2016/17 milk price forecasts at $3.90/kg (€2.33/kg) and $6.00/kg (€3.58/kg), respectively.