New Zealand's August milk production was down around 3per cent.
"A drastic reduction in South American milk production, combined with a similar prospect in Australia, continues to support our view that the global exportable surplus will continue to shrink in 2016," it said.
For the short term at least, those production fundamentals would continue to support the price recovery. While the early spring conditions had been ideal for calving and milk production in most regions, with herd numbers down the milk flow was slower for the season to date.
On the question of currency, Rabobank was forecasting the cross rate between the kiwi and US dollars to fall towards US71c on a 12-month view.
"December looms as the likely timing of the next US interest rate hike."
Economists are expecting a US interest rate hike will strengthen the US dollar and take some steam out of the kiwi.
Opec (Organisation of the Petroleum Exporting Countries) appears to have got non-member Iran on board to ease production flows towards the end of the year, which could put pressure on refineries worldwide to hike prices.
During the past month, the lamb market had moved in different directions, with the North Island surging to $6/kg and the South Island flat, averaging $5.45/kg.
"At this level, farm-gate North Island prices are 9per cent higher year-on-year while South Island prices are 2per cent higher than the same week last year," the report said.
The lamb slaughter between October and August was down 5per cent, or 1 million head to 19.3 million lambs; and likely below the five-year average.
The high kiwi dollar was still challenging for exporters.
"The strong currency is likely to be the major headwind for the industry this upcoming season," the report said.
In the wool sector, the NZ dollar was again compounding with "lacklustre" demand during August and September, with both fine and coarse crossbred prices weakening.
On a year ago, fine crossbred was down 26 per cent and coarse crossbred down 22 per cent.
"Exports for July were back 31 per cent in volume and 12 per cent in value per tonne on 2015 levels, when the largely Chinese-driven spike in demand helped to boost sales," the report said.
Export wine volumes for the year to July were up 5 per cent, and in July were up 16 per cent, reflecting that the wine companies were actively marketing products off the back of strong supplies following the near record 2016 harvest.
"Exports to major markets such as Australia and the UK are moving back into growth after being rationed in part the year before.
"Wine companies chose to prioritise more profitable markets with their dwindling supplies, most notably in North America."
Outside the usual major markets, other destinations "roared ahead" in July, with exports up 289 per cent to Germany, 313 per cent to the Netherlands, 42 per cent to Ireland, 99 per cent to Sweden and 50 per cent to Denmark.
Rabobank cautioned the "dramatic" moves should take into account volatility.
With fertiliser one of the first overheads to be cut by farmers in any sector during hard times, the global urea market had been oversupplied for two years now.
"Global fertiliser demand remains fragile in many markets," the report said.
Monthly snapshot:
• Dairy: Fonterra forecast lifts payout above national break-even price.
• Beef: Prices constrained; weak US imports and strong New Zealand dollar drag.
• Sheep: North Island prices up with slaughter numbers down, South Island flat.
• Wool: Chinese demand for coarse wool critical for market; NZD drag.
• Wine: Export growth up, helped by offshore mainstay markets.
• Fertiliser: Fertiliser prices low.
• Currency: Kiwi declining to US71c, but over longer term.
• Oil: Still in trading range $US40-$US50 per barrel, but potentially up to $US60.
