Prices fell 3.5pc overnight in Fonterra's latest online global dairy auction.
Whole milk powder prices fell 3.4 per cent, skim milk powder was down 6.2 per cent.
The gDT-TWI index, which tracks a range of products sold was down 3.5 per cent.
Paul Grave, manager of Fonterra's "globalDairyTrade" which runs
the auctions, said the market continued to be relatively stable with supply factors the primary driver of market sentiment.
The next auction will be held on July 6.
Market sentiment had been driven by supply concerns, said Grave, with Fonterra's new seasons production soon becoming available for sale and Europe just entered the peak of its production season.
"Following the global financial crisis, buyers are very reluctant to take risky positions," he said. "I don't think the long term prices reflect the forward or future price, but more the reluctance of people to take risk."
During three hours of the online auction, $138 million of dairy products were traded.
Kevin Wilson, rural economist at ANZ New Zealand said "a small percentage shift between months given the amount of volatility in the markets is a pretty good result," with demand still reasonable.
Still, with European and American farmers ramping up production and New Zealand, prices will probably start to come down.
"There has to be some retrenchment from current levels, and Fonterra's forecast pay-out reflects this," Wilson said.
Given the resilience of dairy prices, "consumer prices might have to go up considerably at some point, and we know what that does to demand."
ANZ's Wilson said there's about 320,000 tonnes of skim milk powder sitting in European stores and it's only a matter of time before that comes on to the market.
New Zealand exports of milk powder, butter and cheese surged 29 per cent to $902 million in April from the same month a year earlier, though casein and caseinates slumped 23 per cent to $51 million over the same period.
Dairy products account for some 23 per cent of New Zealand's $39.9 billion worth of exports.
-HERALD ONLINE / BUSINESSWIRE
