Butter was toppled from its record high and wholemilk powder prices - against market expectations - fell 2.7 per cent at this morning's GlobalDairyTrade auction.
Overall, the GDT price index fell by 2.4 per cent, and prices fell for all products on offer apart from cheddar and rennet casein, which gained by 1.9 per cent and 0.9 per cent, respectively.
Whole milk powder prices, which have the greatest bearing on Fonterra's farmgate milk price, dropped to US$3037 a tonne from $3122 a tonne at the last auction on September 20.
Although prices were off modestly, ASB's Nathan Penny said he remained comfortable with his 2017/18 milk price forecast of $6.75/kg. Volumes sold at the event were the highest in over a year.
"We continue to see a risk that prices spike higher over coming months, if conditions for production don't improve soon," Penny said.
The NZX dairy derivatives market had anticipated a strong lift in prices at the latest auction, particularly for whole milk powder, after concerns about a slow start to the season prompted a flurry of futures trading this week.
Butter prices, which last month hit their highest point since the GDT platform started in 2008, fell 3.6 per cent to $5837 a tonne, and butter milk powder dropped by 10.3 per cent to $1804/tonne.
The decline in the GDT price for butter will be welcome news for shoppers.
Latest food price data showed prices paid by consumers for butter in June hit a record $5.05 for a 500g pack, compared with the previous record a month earlier of $4.80, and up from $3.38 in June last year. The annual butter price increase was the largest in percentage terms since 2010.
ANZ rural economist Con Williams said the latest dairy auction disappointed and it may now take more than a New Zealand production downgrade and reduced GDT volumes to hold Fonterra's milk price price forecast at $6.75/kg.
Milk powder and milkfat curves were all in "backwardation", Williams said.
"That means that while there is still short-term supply-demand pressures, the market appears to be banking on a rebound in New Zealand supply and increases elsewhere," Williams said.
"In New Zealand, it's still a little early to tell, with things on a knife edge and could go either way," Williams said.
Pasture conditions remain very sodden in the North Island, but are generally better in the South Island.
"But equally last year's poor performance through the seasonal peak for milk production would appear difficult to repeat," he said.
Among other price movements at this morning's auction, skim milk powder prices fell by 1.4 per cent to $1895 a tonne. Anhydrous milk fat fell 3.4 per cent to $6504 a tonne.
The auction lasted two hours and 15 minutes.