Overall dairy prices have fallen for the fifth consecutive time, putting extra pressure on over-capitalised dairy farmers and the New Zealand economy at large.
Prices dipped 2.2% and are now at their lowest level since 2009. Prices are expected to remain low over the next two to three months before beginning to rise.
Forsyth Barr broker Peter Young said recent positive movements in dairy futures pricing might reflect the European Union reaching its seasonal production peak without excessive growth being reported.
The fall in the value of the New Zealand and the futures pricing movements largely offset the GlobalDairyTrade fall and Fonterra's $4.50 per kilogram of milksolids payout for the season remained achievable.
However, ASB rural economist Nathan Penny said the prices were nearly 38% below a year ago.
Cheddar recorded the largest fall of 7.1%, following a good run over the last two auctions. Skim milk powder, the second key product after whole milk powder, fell 2.6%, reflecting a lift in skim milk power at yesterday's auction.
Whole milk powder prices were down slightly at 0.5%.
''With whole milk powder auction volumes lower at this auction compared to the last auction, the fact prices still fell indicates demand for New Zealand products remains weak.''
Looking at the contract, whole milk powder prices were weakest for the short-dated contracts, in line with a good end to the New Zealand production season, Mr Penny said.
He expected New Zealand production to be up 2% this season compared to last season.
Further out, contract prices were up to 5% for later-dated contracts, indicating buyers expected production to tighten heading into next season.
But even at $US2430 ($NZ3299) a metric tonne, the prices were still very low, he said.
Demand remained weak. In particular, demand from the key market of China had fallen at a rapid rate over the season. Export volumes for the nine months to March were less than half of what they were for the same nine months a year ago.
China's economic growth had been slowing, mainly through investment spending. But officials there had sprung into action to stimulate the economy. The strategy would be successful but would take time, Mr Penny said.
''On the supply side, markets still need to clear this season's extra production. New Zealand's large seasonal flush has struggled to find a home.''
Beyond this season, ASB expected farmers in New Zealand and overseas to respond more fully to low farm-gate prices - prices at which the majority of farmers globally were not making money.
The response should see lower production growth, if not outright falls in production. As a result, prices should start to move back to the global benchmark costs of production of about $US3500 a metric tonne from about $US2500 currently, he said.
ASB was sticking with its milk price forecasts of $4.50 a kg/ms and $5.70 kg/ms for this season and next season respectively. However, the timing of any price rebound remained difficult to predict.
If New Zealand and global milk supply remained high and Chinese demand weak, prices might take longer to recover than anticipated, Mr Penny said.
Labour finance spokesman Grant Robertson said the latest fall in global dairy prices showed there must be meaningful action in today's Budget to diversify the economy.
The downturn in prices had created an economic ''black hole'' of $7 billion from the forecast Fonterra payout cut, hurting regions reliant on dairy and crucial industries.
''The lion's share of the milk price pain will be felt in regions National is neglecting. Many small communities are now mainly reliant on dairy farming. We want the dairy industry to thrive but it isn't good for farmers to carry much of the burden of economic growth on their own,'' he said.
