Rabobank expects the brakes to be applied to milk production in export regions in the first half of 2016, according to Rabobank Dairy Senior Analyst Kevin Bellamy.
Although this will be less dramatic and less evenly spread than we had in mind a few months ago, he said.
At the same time, the Rabobank Dairy Quarterly report expects that lower pricing and some improvement in income growth will foster improved buying in deficit regions.
These dynamics will see excess inventories gradually eroded as the first half 2016 progresses, with stocks approaching normal by around mid-year, according to Rabobank.
"Pricing pressure will still build over our forecast period, but we delayed the timing of the recovery and envisage a somewhat weaker trajectory than we had a few months prior," Bellamy said.
Together with modest growth in consumption within export regions, the report states that this will reduce exportable surpluses of new milk by 4% in the first half of 2016 - tightening the market somewhat during this period.
Looking back at the dairy sector in the fourth quarter of 2015, Rabobank sees international dairy commodity prices stabilising, but failing to show any real signs of recovery.
The Rabobank Dairy Quarterly report said that demand-side conditions remained characterised by improved growth in the US and the EU.
Many emerging markets, however, are showing weakness in demand, it also said.
Aggregate demand does appear to be expanding, but not enough to deal with recent supply volumes at anything more than bargain prices, according to the report.
The report said that production growth slowed considerably in export regions, yet this was not enough to avoid a small increase in exportable surplus.
As anticipated, the fourth quarter saw the world producing more milk than the market needed, Rabobank said.
While the stock overhang didn't appear to worsen much, the report said the need to clear product to less-high-paying regions of the world kept prices extremely low.