This comes as online auction Global Dairy Trade posted a 2.2 per cent gain last week to $US3124 a tonne, following a drop of 3.9 per cent only a few weeks earlier.
Rabobank senior dairy analyst Michael Harvey said there would be pressure on the global dairy market in the first half of this year.
This would come as a result of increased global milk production and moderated demand growth, with all eyes on the upcoming EU peak production season.
Mr Harvey said this could translate into limited upside for Australian farmgate milk prices this season, adding current pricing levels were “where the market is at”.
“Now it is about July 1 (next season). We are not saying it would lead to a dramatic drop in price. It could be a slight reduction down or maintain current levels,” he said.
Mr Harvey said competition for milk at the farmgate could see prices to farmers exceed those from markets as processors sought to secure milk.
United Dairyfarmers of Victoria president Adam Jenkins said forecasts were challenging for many.
He said farmgate prices at less than $5.50/kg of milk solids were just a “holding pattern” and only half the industry made money at these levels.
“The volatility is really starting to hurt people,” he said. “Volatility is making it harder to invest or buy that extra bit of land.”
Globally, EU production remained an “unknown” quantity, Mr Harvey said, although global pricing pressure was now being fed back to farmers.
Late last month, Netherlands dairy giant FrieslandCampina cut its guaranteed price for raw milk this month by four euros to €37.50 per 100kg of milk (57c/kg).
Mr Harvey said production continued to grow modestly in the EU, but New Zealand milk production, already past its peak, would be hamstrung by weather conditions.
Mr Harvey said the GDT result was driven by decreased New Zealand production expectations as well as Fonterra’s decision to remove product from the auction.