While ANZ was holding its $5.75 milk price forecast for the new season, recent auction weakness and the strength of the New Zealand dollar raised the risk the opening estimate might come in below that, its latest Agri-Focus said.
Prices had pared back in recent GDT auctions as dairy market participants over-reacted to the drought declaration earlier in the year.
The next GDT auction will be held tomorrow.
Conditions had improved in most areas, easing concerns of an early finish to the New Zealand season, but more rain was still required in many parts.
There were still some areas where farmers had dried their cows off early and most had shifted to once-a-day, or 16 hourly milking.
However, the general improvement in conditions had resulted in Fonterra adding more product to the last few auctions, the report said.
While the additional amount was not much ''in the scheme of things'', and the total amount offered was still well back on the corresponding period last year, market sentiment was still weak and fragile, meaning the price impact had been considerable.
Additional factors that seemed to be weighing on market sentiment included most buyers appearing to have their needs covered for the second quarter, and uncertainty over European milk supply post-quota removal.
There were conflicting views on whether or not milk supply would kick up in Europe.
But what was being reported was that many buyers had disappeared from the market as they had adequate cover for now and could afford to take a wait-and-see approach to European supply.
The bank expected milk powder prices to trade around the $US3000 per tonne mark as new season supply builds, and then gradually increase towards $3300 in early 2016.
With dairy prices sitting below the marginal cost of production, it expected global supply growth to continue to moderate helping rebalance the market after inventories had been utilised.
Key risks to that view were Europe's export intentions and also China's import demand that remained difficult to read. Domestic milk supply was critical.
