Improving milk prices and favourable seasonal conditions are driving the recovery and export boost, Rabobank senior dairy analyst Michael Harvey said.

“With most of the growth coming from the southern export regions, particularly Victoria, the good reserve of high-quality fodder, good soil moisture and high water entitlement for irrigators is boding well for a strong shoulder and solid finish to the season,” Mr Harvey said.

Australia’s exportable surplus contracted over the past 18 months.

“It is only now that the benefit of improving milk supply will start to drive a recovery in exportable surpluses,” Mr Harvey said.

“In export markets, while demand growth is starting to moderate following a period of robust growth, dairy demand in emerging economies appears to be strong, with robust import purchasing in key deficit regions, including South-East Asia,” he said.

However, the global surplus of milk led to a decline in positive sentiment.

An upcoming “wave of exportable surplus” is estimated to be 3.2 billion litres higher year-on-year (in liquid milk equivalents) than the period between October 2017 and March 2018, Mr Harvey said.

“The recent growth in global milk supply, which peaked in the last quarter of 2017 with the Oceania spring peak and a return to growth in Europe, is taking its toll on global commodity prices,” he said.

Despite the high prices butter has been attracting around the world, supply growth is seen as the biggest risk for the global dairy market.

“Even butterfat prices, which had been defying gravity, have fallen in recent months, however the low stocks of butter and robust demand are expected to support prices well above the five-year average,” he said.

Skim milk prices have remain depressed, which has dragged the whole milk price down, but the global cheese market has fared better through exports to Asian countries like Japan and China.