UK dairy minnow First Milk follow New Zealand, the world's top milk exporter, in foreseeing a market rebound from multi-year lows, just a month after cutting the prices it pays to farmers.

The co-operative, which supplies about 15% of milk produced in the UK, said returns to dairy farmers will be "strong in the long-term" as prices revive once the market works through a surge in output fostered by unusually good pasture conditions in a number of major producing countries.

"Right now, the global demand for dairy has been hit by some short-term oversupply," Bill Mustoe, the First Milk chairman, said.

"However, the market will recover as supply and demand move back into balance."

'Tentative signs of positivity'

The comments represent a further tonic for dairy producers this month, after prices at the globalDairyTrade auction run by New Zealand-based Fonterra, the top milk exporter, rebounded 13.5% from their lowest since August 2009 the previous session.

Last week, New Zealand farm officials said that, while prices were "expected to ease further" over the newly-started 2012-13 season, "the long-term outlook for the sector is positive.

Prices would rebound by more than one-third between 2013 and 2016, to NZ$7.83 per kilogramme of milk solids, boosted by "good demand from emerging markets and an economic recovery in developed countries", at a time of "steady growth" in output.

In the UK itself, the DairyCo bureau reported on Friday "some tentative signs of positivity" in the domestic market, with cream prices rising last month for the first time since September.

However, much of the improvement may have been to one-off demand ahead of the Jubilee celebrations early in June.

And an "increasingly unclear picture" of UK milk output, which has bucked the world trend in showing year-on-year declines, "is making it difficult to know whether any optimism will stick", DairyCo said.

Profits rise

Such relatively upbeat talk follows more than a year of falling dairy prices on international markets, falls which have in recent months worked their way through to levels of payments made to farmers too.

First Milk from June 1 followed other buyers, such as Dairy Crest, in reducing, for the first time since 2009, the amounts it pays for milk, by 1.85p per litre to 26.05p per litre for its liquid milk pool.

The cut reversed a rise of 2.9p per litre in the payout rate in the year to March, during which the group revealed a 1.0% rise to £579m in revenues, and jump of one-third to £13.3m in pre-tax profits.

Profits were boosted by a £9.6m windfall from the sale of shares in Robert Wiseman Dairies, which was taken over by Germany's Theo Muller.