Whole milk powder prices failed to live up to expectations by registering a slight fall at the latest GlobalDairyTrade auction, while product prices overall were flat.

It was a mixed bag for the Fonterra reference products, with the price of wholemilk powder - the product with the greatest bearing on Fonterra's farmgate milk price - dropping by 0.1 per cent to US$3283/tonne.

The decline in whole milk powder prices ran counter to dairy futures market trading which suggested a small gain of 1 to 3 per cent was likely.

Another key product, skim milk powder, fell by 1.6 per cent to US$2612/tonne and
butter milk powder dropped by 10.1 per cent to US$2783/tonne.

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The only reference product to buck the trend was butter, which gained 1.6 per cent to US$4382 a tonne.

Overall, the GDT price index firmed by 0.6 per cent and the average winning price came to US$3517/tonne.

This morning's auction follows a softer than expected result in the first sale of 2017 a fortnight ago, which showed whole milk powder falling by 7.7 per cent and prices overall reducing by 3.9 per cent.

Analysts said there was little in the latest auction to suggest that they would need to revise their farmgate milk price forecasts, which are in a range of $6.20/kg to $6.50/kg, against Fonterra's forecast of $6.00/kg, but ASB said there was now downward pressure on its $6.50/kg forecast.

While the steep decline at the previous auction could put down to thin holiday trading, the same could not be said of the latest sale, which drew in the regular number of participants.

"All up, the recent weak auction results have introduced some downside risk to our 2016/17 milk price forecast," ASB Bank said. "But for now we stick with $6.50/kg," it said.

Westpac said buyer interest out of China looked to have improved over the past couple of auctions, after falling away a bit through December. The bank expected to see some further moderation in prices in the months ahead.

"Today's auction was broadly in line with our expectations and leaves us comfortable with our forecast of a $6.20/kg farm gate milk price this season," it said.

Whole milk powder prices have fallen by 8 per cent this year, reversing the gains from November and December and taking prices back just under $3,300/tonne.

"To us, markets looked to have run a bit ahead of fundamentals through the latter part of last year, so some retracement hasn't come as a surprise," Westpac said.