Global dairy prices are expected to fall as world supply builds and demand growth slows – but it won’t happen quickly according to the latest dairy industry analysis.

Rabobank's dairy quarterly report shows New Zealand's dairy industry is well positioned with increased year-on-year milk production, buoyed by higher milk prices projected for the remainder of the year.

But Rabobank senior analyst Hayley Moynihan said world pricing was likely to face downward pressure as supply built - especially from the southern hemisphere - and demand growth slowed.

However, the shifts  were unlikely to occur rapidly and may be more pertinent in the early quarter four than in the quarter three forecast period, Moynihan said.

“A strong fall in price looks unlikely,” she said.

After taking a big knock during the world financial crisis, global diary commodity prices had a recovery late last year.

Dairy prices have again gained ground, with near-term prices now at exceptional levels, Moynihan said.

“Demand is expected to continue to expand through the second half of 2010, however the rate of growth may well slow in the face of headwinds from reduced economic growth, rising retail prices and substitution pressure,” the report says.