Overall, prices fell 3.1% in this week's GlobalDairyTrade auction, with whole milk powder and skim milk powder, both key products, falling more than 5%.
ASB yesterday slashed its milk price forecast by 40c to $4.70, while Fonterra was expected to update its forecast in early December.
Farmers had hoped to see a lift in the latest auction, or at least a plateau, to realise Fonterra's current $5.30 forecast and the further drop increased the uncertainty of reaching that goal, Federated Farmers dairy chairman Andrew Hoggard said.
Overall, prices were now down nearly 47% in annual terms. The falls for whole milk powder and skim milk powder were larger, both having declined more than 50% since November last year.
Casein prices also fell more than 12% this week, while anhydrous milk fat, butter, butter milk powder and cheddar all bucked the trend, posting rises of between 1.4% and 6.1%.
The latest fall was the 17th fall out of the past 19 auctions and it came as Fonterra reduced auction volume to try to generate upward pressure on prices, ASB senior economist Chris Tennent-Brown said.
Fonterra's forecast auction volumes for the 12 months ahead had fallen by 14% since June but the market was not buying, he said.
While Five Forks dairy farmer Lyndon Strang had hoped a sub-$5 milk price would not happen, it was now looking ''pretty seriously'' around that mark.
He had also been hoping for an improved auction result this week and the fall came as a ''bit of a bolt out of the blue''.
While cashflows were sound, farmers needed to start planning for winter and spring next year when it was ''really going to get tight''.
Until now, capital investment had not been made and some big projects might have been put on hold. Farmers needed to look seriously at unnecessary farm working expenses.
While he was positive the situation would ''come right'', it had taught farmers that it was a very volatile market and they needed to plan a ''pretty low-cost system''.
North Otago Federated Farmers president Richard Strowger, who also has a consultancy business, said farmers were mostly optimistic.
They understood it was a volatile time and they had been helped by last year's very good payout, with many using it to upgrade infrastructure and plant.
The outlook long-term was ''looking fine'', with plenty of demand for dairy products, but a couple of years of fluctuations was expected, he said.
Federated Farmers West Coast provincial president Katie Milne said Westland Milk Products' payout would be hard to hold, as a result of the auction result, with the co-operative selling more milk powder than anything else.
Suppliers of New Zealand's second large dairy co-operative should be prepared for a possible drop in the payout after the board meeting at the end of the month, she said.
Westland's current payout prediction for the 2014-15 season is $5.40-$5.80kg ms before retentions.