Fonterra's milk price forecast for the current season remains under downward pressure after product prices fell by 3.5 per cent at the latest GlobalDairyTrade auction.

However, economists said the weaker New Zealand dollar would have a cushioning effect on farmers' milk cheques.

Whole milk powder prices, the most important component of the forecast, fell by 5.5 per cent to US$2852/tonne - the 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.

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The auction comes a week after Fonterra at its annual meeting reiterated its forecast farmgate milk price for 2017/18 of $6.75 per kg of milksolids, plus earnings per share in a range of 45c-to-55c.

By law, Fonterra has to issue an updated milk price forecast every three months. The next update is due in December, although the board may choose to revise the forecast earlier.

Some banks have already lowered their forecasts and Westpac yesterday joined the fray, cutting its forecast to $6.20/kg from $6.50/kg.

"The decline in milk product prices over recent auctions, despite weaker domestic production, suggests some softening of demand," Westpac said in a commentary.

"We expect China's growth to slow next year as the Government focuses on economic rebalancing, which is likely to crimp demand for a range of commodities."

The bank's forecast assumes dairy auction prices for whole milk powder will fall by 12 per cent between now and April, 2018.

Further out, Westpac has issued its forecast for 2018/19 of 6.50/kg on the basis of a revival in the Chinese economy from late 2018 and supported by a lower average exchange rate over the season.

Rabobank dairy analyst Michael Harvey said the auction was not all bad news.

"The weaker New Zealand dollar will be partially offsetting some of the falls," he said.

The average price of whole milk powder on GDT has fallen 9 per cent since August. Over the same period, the New Zealand dollar has depreciated by 7.5 per cent.

Harvey said the concern was that European production would continue to pick up pace.

"What happens from here through to the first half of 2018 with production in Europe will largely dictate global market movements."

AgriHQ analyst Amy Castleton said North Asia bought less product overall at the auction.

It was likely that Chinese buyers have now fulfilled their needs to land milk powder whilst the lower tariff rate applies from January 1, Castleton said. Demand for whole milk powder from other regions was a little soft.

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.

ANZ senior economist Phil Borkin said a $6.25-$6.50 milk price would still generate "reasonable" cash flow returns for farmers.

Last season, DairyNZ's estimate of breakeven was $5.05/kg.

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

Fonterra's forecast for this season compares with $6.12/kg of milksolids in 2016/17 season.

Farm balance sheets came under huge pressure when prices slumped to $3.90/kg and $4.40kg - well below most farmers' breakeven points - in each of the preceding two seasons.

The slump required Fonterra to set up a $430 million soft loan scheme to see farmers through the downturn. Most took up the offer and are now in the process of paying it back.