ANZ Bank rural economist Con Williams said the strength of demand from China for dairy, and other New Zealand commodities such as sheepmeat, remained unclear.
"Since 2008 we have obviously had a growing export profile to China - quite aggressively through all the major commodities groups," Williams said.
"They have all been tripped up - at one point or another - for various reasons, but at the moment we are noticing quite a slowdown in demand from China.
"That's of concern, not just for dairy but for sheepmeat and the like."
The auction showed signs that the market for dairy was consolidating, after big gains in the previous two auctions. Skim milk powder was catching up in price, but longer-dated whole milk powder contracts declined in price.
That suggested short-covering due to a shortage of product out of New Zealand at present and not a strong improvement in demand from the main global importers.
"The main importer that appears to be missing in action is China, and this makes us cautious on the outlook for the 2015/16 season," ANZ said.
ASB Bank said Fonterra lifted its forecast annual auction supply by 1.7 per cent and volumes sold at the auction were more than Fonterra indicated at the previous auction.
"In other words, the strong price gains look to have given Fonterra confidence to reintroduce some product back into the market, which contrasts with the general steady reductions in auction volumes over the second half of 2014 and early 2015," said ASB rural economist Nathan Penny.
ASB said the result suggested that dairy markets had now largely factored in lower production brought on by drought. The bank has maintained its 2014/15 and 2015/16 Fonterra milk price forecasts at $5/kg and $6.50/kg, respectively.
Dairy auction
• Price index gained 1.1% from the last auction a fortnight ago.
• Sixth consecutive gain since prices started climbing from a deep trough.
• Whole milk powder fell by 1% to US$3241 a tonne.
• Skim milk powder rose by 5.9% to US$2935 a tonne.
