Dairy prices are expected to remain buoyant at Wednesday's GlobalDairyTrade (GDT) auction - the second to be held after the Fonterra's whey concentrate scare early this month, says the ANZ Bank.
The bank said the auction would again be interesting as reputational damage and temporary import bans linger in the wake of the scare.
International dairy prices fell at the first GlobalDairyTrade auction to be held in the aftermath of the first announcement from Fonterra on August 3, the GDT Price Index dropping by what commentators said was a relatively modest 2.4 per cent.
ANZ said "it looks like the cupboards are fairly empty at the moment" which would provide near-term and medium-term support for prices.
The volumes on offer at this week's auction are as previously forecast, the bank said, but there had been a big reduction in the forecast offerings over the next 12 months.
New Zealand is a major supplier of whole milk powder (WMP) and anhydrous milk fat to global dairy markets, with many reliant on purchasing product through the GDT platform.
"A reduction of supplies offered is therefore likely to keep prices buoyant in the short to medium term, especially for WMP where substitutes are limited," ANZ said.
Prices for skim milk powder will also be key. Corn futures have moved lower on expectations that a record US crop will boost world reserves to their highest level since 2002. Higher farm-gate prices and lower feed costs are improving margins for US dairy producers.
Extra US production spilling over onto international markets will put downward pressure on New Zealand dairy prices, especially for skim milk power, the bank said.