Westpac has lowered its farmgate milk price forecast for the 2019-20 season by 30c after another fall in the latest GlobalDairyTrade auction.
Prices nudged down 0.4 per cent this week, the fourth consecutive fall in prices. The overall price index was at levels last seen in January.
While economists were always expecting auction prices to fall over the course of this year, it had come through faster than anticipated, Westpac senior economist Satish Ranchhod said.
The bank was lowering its forecast from $7.20 to $6.90 while Fonterra's forecast range was $6.25-$7.25.
The fall in the index related to lower prices for fats products, including butter, anhydrous milk fat and cheddar.
While the overall price index was down, prices for whole milk powder were unchanged and there was a 3.2 per cent rise in prices for skim milk powder.
ASB senior rural economist Nathan Penny said the bank still saw global dairy markets, on the whole, as tight.
New Zealand production growth was past its cyclical peak and production growth in the other major dairy exporters was soft.
On that basis, ASB expected dairy prices could push towards cyclical highs later in the season.
The New Zealand spring would be important for setting the direction for prices.
''If we are right that domestic production is soft this year compared to 2018, dairy buyers are likely to be caught short, given many buyers appear to be currently living hand-to mouth,'' Penny said.
Weaker dairy prices were the main culprit for the drop in the ANZ world commodity price index, which fell 3.9 per cent in June to record its first decrease this year. The index has fallen 2.4 per cent in the past year.
Dairy prices fell 8.5 per cent in June, reflecting the recent softening in dairy commodity prices, ANZ agriculture economist Susan Kilsby said.
All of the major dairy ingredients weakened. Whole milk powder was down 5 per cent and skim milk powder by 6.6 per cent.
The fall in milkfat products was even further pronounced, although they remained strong in historical pricing terms.