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Fonterra chairman John Wilson says the 3% drop in last week's GlobalDairyTrade (GDT) event is not a lot in the context of the increases in recent GDT events.
In the four previous auctions the price index lifted at least 60% overall and whole milk powder over 80%.
Wilson expects prices to keep firming over the next six months, to about US$3000 to US$3500 per tonne.
The WMP index was down 4.6% last week to an average price of US$2694/MT.
"While it is disappointing to see the drop, demand is soft in some key economies; we need demand to go up," Wilson says.
ASB rural economist Nathan Penny says it looks as though markets have largely factored in that production is falling here in New Zealand.
"They have taken that information on board and now it's more about seasonal factors and how things develop from here.
"Last week's decline is likely to be due to the markets getting a bit ahead of themselves and now they are taking stock.
"From here, as we continue to see production falling compared to last year, we expect that to be reflected in gradually rising prices.
"As we get closer to summer and the risk of El Nino becomes more concrete that is also likely to support prices or push prices upwards. But the big move has now happened and it is more gradual from here."
He says the NZ production fall is the main driver and from here it will continue to drive prices but just at a more modest rate.
"Growth is slowing in the rest of the world but they are not doing the heavy lifting New Zealand is."
ASB is still forecasting a $5/kgMS milk price payout for 2015-16. – Pam Tipa
OPINION: There is zero chance that someone who joined Fonterra as a lobbyist, then served as a general manager of Fonterra's nutrient management programme, and sat on the board of Export NZ, a division of lobbyist group Business New Zealand, doesn't understand that local butter (and milk and cheese) prices are set by the international commodity price.
Kiwis love their butter, and that's great because New Zealand produces some of the best butter in the world. But when the price of butter goes up, it's tough for some, particularly when many other grocery staples have also gone up and the heat goes on co-operative Fonterra, the country's main butter maker. Here the co-op explains why butter prices are so high right now.
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