ASB is sticking to its $6 milk price forecast for the 2016-17 season but has highlighted growing risks to that figure.
The bank's forecast assumed dairy prices would rise over 2016 but, if dairy buyers "sit on their hands'' and wait for the Brexit dust to settle over coming months, achieving that forecast would become increasingly difficult with each passing dairy auction, the bank's latest Farmshed Economics report said.
In addition, sharply weaker growth in the EU could lead to a higher EU dairy surplus and that surplus would then affect New Zealand's export markets, putting prices under further pressure.
So far, agricultural markets had reacted "modestly negatively'' to Brexit. This week's dairy auction would give a further steer on the direction of dairy prices in the short term.
Dairy was the second biggest gainer in last month's ANZ commodity price index, which increased 3.7%. Seafood led the charge, jumping 8.2%, while dairy was up 4.8%.
Cheese (up 9.2%), skim milk powder (8.4%), butter (up 5.5%) and whole milk powder (up 3.7%) showed the way, ANZ agri-economist Con Williams said.
Skim milk powder prices "played catch-up'' to those in Europe, while whole milk powder lifted due to lower seasonal supply from New Zealand.
Milkfat prices were being lifted by United States consumers moving back towards natural products, with nutrition experts increasingly saying butter was a better choice than alternatives, Mr Williams said.
Cheese demand was being driven by a quite different trend of robust food service demand, such as pizza and burgers, in both developed and developing markets, he said.
Meanwhile, Brexit and the stronger New Zealand dollar had landed a double blow to lamb prices. After rising nearly 15% over the six weeks to June 6, the price for a 17.5kg lamb had since dipped 3%, the Farmshed Economics report said.
