While the key whole milk powder prices dipped 2.7%, five other products on Global Dairy Trade (GDT) auction recorded price rises. Lactose prices spiked over 19%, while skim milk powder, cheddar, anhydrous milk fat and butter milk powder prices all rose between 2% and 4%. Butter was the other product to post a price fall - down 1.6%.
Westpac senior agricultural economist Nathan Penny notes that the result follows a run of four consecutive price rises, "so in that sense, prices were due a breather".
"During that period, WMP prices had lifted by over 20%, albeit following a very steep fall in August. After the fall overnight, that lift moderates back to around 17%."
Penny also notes that New Zealand spring production has started on a firm note, so that may also explain the price fall. September production was up 1.3% compared to September 2022.
Dairy markets previously had been factoring in drought risk on the back of the El Niño weather pattern, he says.
"In our view, this has been overdone as New Zealand water tables are generally very high and most farmers have ample feed on hand.
"This will help mitigate or dampen any drought impact. Moreover, we expect ongoing firm production in annual change terms over the remainder of spring."
Meanwhile, Chinese demand is hinting at a pickup.
Penny says recent economic data has been more positive than expected so this may translate into higher demand over time.
"Also, we noticed that WMP contracts 4 and 5 - for delivery in 4 and 5 months' time - were 8% and 9% higher, respectively, than contract 1.
"This is the clearest sign to date that the removal of the 10% tariff from January will boost Chinese demand.
"On balance, we remain cautious. Developments, both positive and negative, since we lifted our milk price forecast have largely cancelled each other out."
Westpac is sticking to its forecast milk price of $7.25/kgMS for this season.
Last month Fonterra announced a new forecast milk price range to $6.50 - $8/kgMS, with a new midpoint of $7.25/kgMS, up 50c on its previous forecast.
