Fonterra's $6.75/kg milk price forecast remains under downward pressure after product prices fell by 3.5 per cent at the latest GlobalDairyTrade auction, but economists said the sharp fall in the New Zealand dollar over the last fortnight was cushioning the effect.

Whole milk powder prices, the most important driver of the co-op's forecast, fell by 5.5 per cent to US$2852 a tonne - their third decline in a row.

Prices for the other key "reference" products were mixed, with skim milk powder gaining 1.2 per cent to US$1818/tonne, butter milk powder rising 7.2 per cent to $1931/tonne, butter falling 3.6 per cent to US$5516/tonne and anhydrous milk fat rising 0.5 per cent to US$6894/tonne.

Among other movements at this morning's sale, cheddar prices fell by 2.8 per cent to US$4001 a tonne while rennet casein fell by 4.0 per cent to US$5465.

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AgriHQ analyst Amy Castleton said North Asia bought less product overall at the auction. She said it was likely that Chinese buyers have now fulfilled their needs to land milk powder whilst the lower tariff rate applies from January 1.

Demand for whole milk powder from other regions was a little soft, she said.

Volumes of whole milk powder were at their seasonal peak at this event, so buyers would not have felt they needed to compete too hard for product, she said.

Castleton said the fall in whole milk powder prices would increase the pressure on milk price forecasts.

AgriHQ's current milk price forecast sets at $6.36/kg but may be revised lower tomorrow, she said.

The auction comes just a week after Fonterra reiterated its forecast 2017/18 payout of $6.75 per kilogram of milk solids plus earnings per share in a range of 45-to-55 cents at its annual meeting. Fonterra's season ends on May 31.

After the last auction on October 18, some bank economists revised down their forecasts to around the $6.25 to $6.50/kg level.

ANZ senior economist Phil Borkin said it was a disappointing auction but that the near 4 per cent decline in the New Zealand dollar against the US dollar since the last sale would largely offset the decline in product prices.

Borkin said a $6.25-$6.50 milk price would still generate "reasonable" cash flow returns for farmers. "It's still a decent story at these levels," he said.

ASB Bank rural economist Nathan Penny is still sticking with his forecast of $6.75/kg, "but the latest weak auction poses a downside risk to our view".

"We expect weak NZ production to translate into higher prices by the end of the year, but will be monitoring prices carefully over coming auctions," he said in a commentary.

Fonterra's forecast for this season compares with $6.12/kg of milksolids in the 2016/7 season.

Farm balance sheets came under severe pressure when prices slumped to $3.90/kg to $4.40kg - well below most farmers' break even points - in each of the preceding two seasons, requiring Fonterra to come up with a soft loan scheme to see farmers through the downturn.