Dairy commodity prices could drop again soon despite having recovered in recent weeks, analysts have warned.

Tighter supply had resulted in a “surprisingly vigorous bounce” for global commodity prices over the past few weeks, according to Rabobank’s Dairy Quarterly report. Whole milk powder prices rose by 42% during the first quarter of 2015 to $5,043/tonne (£3,437/tonne), while butter and skimmed milk powder prices rose by 20% to $4,620/tonne and $4,918/tonne respectively [USDA].

But the bank warned weakness in the Chinese and Russian markets would contribute to downward price pressure as the year progressed.

Dairy imports into China and Russia were down 50% and 40% respectively in the first half of 2015, and Rabobank warned import levels were likely to remain sluggish during the second half of the year due to the Russian trade embargo and low Chinese demand for dairy.

The situation had been compounded by a fall in the value of several emerging market currencies - which had helped to limit market contraction caused by the Russian embargo - which had also weakened the buying power of alternative markets for displaced dairy.

“Things are not likely to be as tight [in supply terms] through the middle of the year as the market is currently factoring in,” said author Tim Hunt.

He added “modest upward price pressure” was expected to return later this year in the wake of lower prices driving up global dairy consumption.

On a more positive note, a separate Rabobank report published last week, entitled New Dawn for European Dairy, suggested global dairy demand would increase at a compound annual growth rate of more than 2% between 2014 and 2020. Analysts said milk prices were likely to rise to incentivise farmers to up production levels.

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