A double boost to supplies, of rising production and the release of European stocks, will cost the dairy market the "tension" which has doubled prices over the last year, Rabobank has warned.

The bank, noting the 15% "correction" in milk powder prices that auction results are factoring in, said that the "tide has turned for milk production".

Production from export regions rose in April for the first time in nine months, as revived dairy prices prompted farmers to lift production.

And supplies also look set to be boosted by the European Union's decision to sell down 192,000 tonnes of skimmed milk powder and 25,000 tonnes of butter it has in stock, and which have not been earmarked for social programmes.

"The second half of the year could well see product availability improve," Rabobank said.

"The supply tide is coming in."

'Healthy rebalancing'

This reversal would ease the "ongoing tension" in the market, as "strong pockets of demand" met falling dairy production in major exporting countries.

Indeed, the shift represented a "healthy rebalancing of a market that has been propped up since late 2009 in part by post-financial crisis distortions", Rabobank said.

"Some pressure relief is almost certainly in the interest of buyers and sellers alike, if we are to avoid a difficult boom and bust cycle."

Global dairy prices have doubled, halved then doubled again within the last four years, posing widely recognised planning problems for both farmers and milk buyers.

EU sales

Rabobank said that one potential hiccup to this rosy scenario was a botched selldown of the EU inventories, which were built up through intervention buying during the dip in world prices.

The EU last week rejected tenders, priced at between E1,610 and E2,100 a tonne, for the first 49,000 tonnes of skimmed milk powder put up for sale. The market price is around E2,350 a tonne.

"Having seen the gradual recovery of the market in recent months, we have sent a strong signal today that we will manage the release of these stocks in a way that will not endanger that recovery," Dacian Ciolos, the EU agriculture commissioner, said.

The EU will on June 17 decide on the next round of tenders, for 79,500 tonnes of skimmed milk powder.