Dairy prices are still predicted to rise during the 2015-16 season despite another fall in the GlobalDairyTrade auction.
Prices fell 7.4% this week, for the second consecutive week, a move that was largely expected. Both whole milk powder and skim milk powder prices were down 8%.
New Zealand's September production confirmed as weak and ASB rural economist Nathan Penny expected prices to hold their level or increase.
While overall prices were still 46.3% higher than the August trough, prices had fallen over two auctions. ASB interpreted that contradiction as buyers working on an assumption that other producers, like the EU, would pick up New Zealand's slack, but the bank disagreed.
Lost New Zealand exports were too big to cover. The country accounts for about a third of global dairy exports. It also accounts for the ''lion's share'' of whole milk powder exports.
New Zealand production was expected to fall 6% this season, compared to last, which would equate to the largest fall since 1999. Farm cashflows remained tight and cow numbers were down significantly, Mr Penny said.
Westpac senior economist Michael Gordon said the decline in recent auctions meant the bank's forecast milk price of $5.30 for this season was now ''looking on the high side''.
However, the bank was reluctant to drop its forecast just as farmers were heading into a summer with a potentially severe drought-causing El Nino weather pattern.
Disruptions to New Zealand's milk supply could have a significant impact on world prices, though perhaps less so now than in the past, as the northern hemisphere had increased its production capacity in recent years.
The ANZ commodity price index lifted 6.9% in October, driven by rebounding dairy prices. It was the second consecutive monthly increase, although non-dairy prices declined for the sixth consecutive month.
Dairy prices rose 17.9% in October, continuing their recovery from extreme lows in early August. Whole milk powder led the gains, increasing 26.2%, followed by skim milk powder (up 14.1%) and butter (7.8%).
