A Rabobank report shows farmgate milk prices around the world are beginning to fall - which it says is good news for New Zealand farmers.
The bank's third quarterly dairy report, Scaling the Milk Mountain, shows in July and August prices of the key commodities fell a further 26 percent from already-extreme lows, but began to recover in September.
Rabobank research analyst Emma Higgins said as farmgate prices fell, farmers around the world would tighten milk supply, which would boost the recovery of prices.
"It really begins with falling farmgate prices elsewhere. Unfortunately our farmers here have really bore the brunt of that and they have been painfully low, but the good news is they're falling elsewhere across the globe so, for example, prices are nearing break-even costs for farmers over in Europe and margins also in the US are becoming squeezed, so this is really good because it will help to tighten the milk supply in these key producing regions," Ms Higgins said.
"From a supply side New Zealand could actually lead this contraction in terms of milk production. We're expecting a drop in milk production around about seven to 10 percent this season, so that's quite a high number and that's largely as an impact of the high cow cull comes through, plus the anecdotal evidence we're hearing about supplementary feed use.
She said El Nino was likely to further reduce supply.