International buyers don't believe New Zealand's milk supply is falling and that was keeping demand weak, says a global dairy expert.
Photo: RNZ / Alexander Robertson
Fonterra is expecting a five percent drop in New Zealand's milk supply this season for 2015/16, which is equivalent to around 150,000 metric tonnes of whole milk powder.
Milk production is expected to be down because of the forecast El Nino weather event and fewer cows being milked because of the low prices.
Rabobank global dairy strategist Tim Hunt said for dairy prices to rebound, milk production around the world needed to fall and excess stock needed to be cleared before demand will increase.
Mr Hunt said China, the United States and Europe have significant amounts of milk powder, butter and cheese stored, as does South East Asia, the Middle East and North Africa.
He said because of New Zealand's history with record milk production, buyers did not think a large fall in production will occur.
"We constantly speak to our clients about the expected slow down in New Zealand supply this year and really a general trend to slower growth in the medium term, but New Zealand has surprised so many players in this market by year after year achieving fantastic growth for most of the last 15 years, that some of them have stopped believing that slow down will ever come," he said.
"Unfortunately until they see some really hard evidence of this, they remain non-believers."
Mr Hunt said prices were expected to recover in the middle of next year, but he said growing European supply could hinder that.