The central bank in New Zealand, the world's top milk-exporting country, cautioned against getting carried away over the dairy market's recovery from 13-year lows hit three months ago, even as futures continued to give back gains.
The Royal Bank of Zealand, explaining its decision to keep its benchmark interest rate on hold at 2.75%, flagged the cloud still hanging over the key dairy sector.
"The sharp fall in dairy prices since early 2014 continues to weigh on domestic farm incomes," the central bank said.
While global dairy prices "have risen in recent weeks, contributing to improved household and business sentiment… it is too early to say whether these recent improvements will be sustained".
Indeed, the comments came as whole milk powder futures extended a decline in New Zealand's NZX exchange, with the best-traded December contract falling by 1.4% to $2,535 a tonne – taking nearly to 19% its decline from a late-September high.
"The market continues to correct towards a more comfortable level," said Tobin Gorey at Commonwealth Bank of Australia, flagging the dent to sentiment from New Zealand export data for September, released on Wednesday, which showed a steep drop in dairy shipments.
Overall dairy exports tumbled by 22% year on year to $622m, with low prices exacerbating the impact of a 6.7% fall in volumes.
"Whole milk powder and skim milk powder export volumes fell even further though – to the lowest September levels since 2011 – indicating that global demand is still relatively lacklustre," Mr Gorey said.
Indeed, the data undermined a recent boost to the market from ideas of strong decline in New Zealand production, encouraged by prices which hit 13 year lows three months ago, with output falling by more than 7% last month.
"We expect the impact of these lower production figures won't be felt until the New Year, so dairy's recovery remains on the horizon for now," Mr Gorey said.
Separately on Thursday, data from Dairy Australia showed a sharp drop-off in the rate of increase in Australian dairy output, to 0.8% last month, from rates of 3.8% in August and 5.5% in July.
The data come amid a particularly important period for milk output from southern hemisphere producers, in witnessing the so-called "spring flush" in volumes.
Output in both Australia and New Zealand typically peaks in October.
The comments follow two company results warnings on Thursday related to the weak milk prices, with German food group GEA blaming dairy markets for a cut to a "moderate decline", from growth of about 5%, in its sales forecast for 2015.
"The weakness of the milk markets and the postponement of several larger orders had a significant impact on our figures," said Jürg Oleas, the GEA chief executive.
"This explains why we reduced our revenue forecast for the current fiscal year," although the group stuck by its forecasts for earnings before interest, tax, depreciation and amortisation (ebitda) of E590m-640m.
Separately, PGG Wrightson, the rural services group controlled by China's Agria Corp, highlighted setbacks in dairy as it lowered to NZ$61m-67m, from NZ$66m-68m, its forecast for full-year operating ebitda.
"While the recent bounce in global dairy prices provides welcome relief for the sector, our view is that this news has come a little late for New Zealand dairy farmers to materially increase their spending with us for the current season," said Mark Dewdney, the PGG Wrightson chief executive.
"A low dairy pay-out forecast at the time farm budgets were set remains the key reason we believe our earnings may dip in 2016."
By Mike Verdin