The average price at the auction was $2758 a tonne.
Fonterra has set its price forecast for the season at $4.70/kgMS.
Yesterday the ANZ cut its forecast from $4.75/kg MS to $4.35/kg MS saying it expected a recovery to come late in the season.
AgriHQ analyst Ivan Luketina said “Renewed optimism for the remainder of the season has shown through in an increase in prices on the NZX Dairy Futures market since the January 6 auction.
“That was the biggest driver of the AgriHQ Seasonal Farmgate Milk Price lifting to $4.40/kg MS this week.
“The GDT price index moved up by 1% as a rise in the whole milk powder price was offset by falling prices elsewhere.
“Milk powders were the most significant gainers, with whole milk powder rising 3.8% overall to its highest level on GDT since early November.
“Fat products didn’t fare quite as well, after strong rises at the previous auction. Anhydrous milk fat dropped back by 5%, while butter climbed just 0.1%.
“Although milk production in New Zealand is well past its seasonal peak, milk flows are still high at this time of year, so it’s hard to see prices rising quickly in this market environment without something significant tipping the supply and demand balance.
“That may yet come, however, if the current dry weather pattern persists in key dairy producing regions,” he said.
“The AgriHQ Milk Production Predictor is already indicating that the weather is having an impact and it’s expected production forecasts will be lowered further when the next revision is done on February 1.”
The volume of whole milk powder offered by Fonterra was lowered from what had previously been forecast when revisions were made last week.
The 950 tonnes less on offer than previously forecast, and 3250 tonnes less than the January 6 auction, might have had an effect on the price as buyers responded to the tighter available supply, he said.
ANZ said its new forecast added another $1 billion to the $6b drop in dairy incomes from last season’s $8.40/kg MS it had previously predicted.
It said Chinese inactivity in the market and increased production in Europe and the United States combined with the Russian ban on European Union products had caused a glut of products on the market.
Other factors weighing on the payout included an expectation the NZ dollar would stay strong, that dairy prices would recover more slowly than previously anticpated, the growth in supply from other producers was the largest in eight years and Chinese domestic milk production appeared to have increased.
"While current international prices are below the cost of production, it is taking longer than expected for these to feed through to all major markets and farm prices," the bank said.
"The next 18 months will be difficult for farmers' cashflow and ability to balance the books," particularly in regions affected by dry weather that is developing into a drought.
"It will necessitate a cut in not just capital and discretionary expenditure but also core operating expenditure to break even and avoid a debt blowout," it said.
However, if globally traded milk supply slowed as expected in response to much lower prices, global auction prices might rise by 30% to 40% percent by the second half of the year.
"We project milk powder prices to recover to around the US$2800 to US$3000 a tonne mark by the middle of the year and then US$3300 to US$3500 per tonne by early 2016.
At today’s auction butter was up 0.1% to US$3564 a tonne, rennet casein up 3.3% US$8159, skim milk powder up 1% US$2389, whole milk powder up 3.8% US$2402, anhydrous milk fat down 5% US$4286, butter milk powder down 6.4% US$2559, cheddar down 4.3% US$2961
There were 169 buyers at the auction. They made 113 winning bids for 31,326 tonnes of products.
