Later-dated contracts have been particularly hard hit, but not all of this weakness can be put down to the food safety threat, said ANZ rural economist Con Williams.
Demand from major importers, especially China, is still slack and competition from the European Union - buoyed by an increasingly export-friendly euro - remains high.
Milk supply growth may have slowed, but the EU is still shipping a lot of product to the Middle East and Southeast Asia - two key regions for New Zealand product, ANZ said.
"With Russia remaining closed and the euro continuing to move lower, this pressure won't abate anytime soon," Williams said.
Supply would tighten over the next couple of months, he said, but not by as much as many had anticipated.
This has seen Fonterra add an additional 5975 tonnes of whole milk powder to be offered over the next three months.
"Taken all together, and with market sentiment still fickle, we expect the balance could be tipped toward weakness at this week's auction," he said.
Last week, the Government disclosed that there had been a threat to contaminate infant and other formula with 1080 poison.
Government officials said the likelihood of the threat being carried out was extremely low.
Milk collection in New Zealand for the nine months to February 28 reached 1291 million kgMS, 1.5 per cent higher than the same period last season, Fonterra said. However, the rate of growth has slowed with February milk collection 7 per cent behind February last season, Fonterra said.
At the last GDT sale, prices rose by 1.1 per cent.
Dairy demand
• NZX whole milk powder futures prices have declined 10-20 per cent since the last auction.
• Demand from major importers is still slack and competition from the EU remains high.
