Dairy down but dollar's drop saves the day

International dairy prices continue to drop in Fonterra's online auction but economists say the falling currency value is buffering returns when converted to kiwi dollars.

The average price for a basket of products in Fonterra's latest online auction fell 1.6 per cent - the eighth consecutive drop.

The average winning price in the auction was US$3449 a tonne - down 28.5 per cent since March 1 and 4 per cent lower than around the same time last year.

BNZ economist Doug Steel said the auction result could have been worse given global growth concerns, declines in other products such as wheat, corn and sugar, and the fact New Zealand milk supply was off to a flyer this season.

Dairy farmer co-operative Fonterra this week said a good autumn and reasonable winter was resulting in record milk flows, with collection on average up more than 13 per cent on a daily basis compared to last year.

Steel said dairy prices were about 19 per cent above the 10-year average and only four per cent lower than a year ago.

"In the scheme of things that's still a very healthy level and should generate good profitability back here at home."

In terms of export returns to New Zealand the negative headline number was a fraction misleading given that it was quoted in US dollars, he said.

"If you translate it into New Zealand dollars, prices lifted about 7.5 per cent in this auction compared to last and indeed they've been rising on trend since the beginning of August."

ANZ rural economist Con Williams said the auction prices were a little weaker than expected.

"But if you look at the volumes and things like the number of bidders participating, and all those types of things, they're up," Williams said.

"So to me it highlights that the demand is still there and they are shifting reasonable volumes and the weighted price is only slightly below this time last year," he said.

The New Zealand dollar was trading at US76.03c yesterday, compared to US88.2c at the start of August.

Williams added: "In my mind that [currency] has fallen a lot more than commodity prices have and so that's going to benefit farm gate prices."