Fonterra's forecast farmgate milk price for the current season is $6.00/kg of milk solids - well above the estimated break-even point for farmers of $5.05/kg.
Economists expect to see upward revisions to the price as the worldwide supply and demand imbalance rectifies itself after a near two-year price slump.
ASB Bank economists saw the price drop as a consolidation and yesterday said they remained upbeat on the dairy outlook for the season.
The bank last year revised up its 2016/17 forecast to $6.50/kg from $6.00.
At yesterday's levels, whole milk powder and skim milk powder prices have risen by 52.2 per cent and 41.3 per cent, respectively, over the past 12 months.
Jon Spainhour, a broker and partner at Chicago-based dairy specialist Rice Dairy, said the outlook remained favourable, despite the weaker auction result.
"New Zealand skim milk powder prices are significantly higher than the rest of the world's, so there are downside risks," he told the Herald.
"Right now it keeps moving higher. I think it [the firming trend] persists.
"Another thing to look at is that Australian production is really down, so I think that only helps to serve the cause."
Another Chicago-based commodities house, HighGround Dairy, said a strong rise in China's dairy import volume, along with a contraction in global supply, was expected to support dairy commodity prices in 2017.
"While the primary commodity imports [whole milk powder and skim milk powder] remain well below their highs from 2013, the incremental growth and recent spike in categories such as whey products, infant formula, fluid milk and cream and cheese could keep underlying support to all commodities until production growth returns," HighGround said.
Fonterra's forecast milk collection in New Zealand for the 2016/17 season is 1460 million kg, 7 per cent down from last season.
Australian production in October had decreased by 11 per cent compared to the same month in 2015 as milk supply continued to be hit by unfavourable pasture conditions.
Numbers were down in all the major producer states, including Victoria, New South Wales and Tasmania.
European production decreased for the fourth consecutive month, with September down 3 per cent from the same month the previous year.
The United Kingdom was down 8 per cent, France was down 7 per cent, Germany was down 3 per cent and Ireland was down 4 per cent.
Among the world's major producers, the United States is the odd one out. US production in October was up 3 per cent compared to the same month in 2015.
US milk production for the 12 months to October was 2 per cent above that for the same period 12 months earlier.
