Dairy prices were broadly steady at the Global Dairy Trade auction on Tuesday night with the price index down just 0.2 per cent.
But some pundits are concerned increasing global trade tensions do not augur well for prices in the season ahead.
Westpac NZ has downgraded its forecast for the NZ farmgate price for 2019/20 to $NZ6.50 a kilogram milk solids, down from $NZ6.70/kg MS.
Whole milk powder was the big winner in Tuesday's auction with prices up 2.1pc to US$3100/tonne.
Cheddar was also up (0.8pc) but other commodities were down with fats continuing their slide - butter down 3.4pc and anhydrous milk fat down 3.7pc.
Fat prices are now lower than a year ago, but other prices are stronger with WMP up 7.6pc, cheddar up 10.7pc and skim milk powder up 27pc on August 2018.
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Westpac NZ senior economist Anne Boniface said WMP prices were surprisingly strong, with futures markets expecting a fall.
But despite the increase, it is now forecasting NZ farmgate prices at the lower end of Fonterra's milk price forecast.
"The change in view is down to our more pessimistic take on the international growth outlook," Mr Boniface said.
"We have become gloomier about the consequences of the US-China trade war.
"Our previous view that both sides would eventually step away from the conflict, as it was in neither side's best interests, appears to have been too optimistic.
"Not only have recent developments upped the stakes for both sides, dragging consumers into the crossfire, they also point to a much more enduring and longer lasting conflict than we had previously envisioned.
"Trade tensions will remain elevated for some time yet, which will weigh on confidence, investment and hiring decisions in both countries."
This would see dairy prices continue to ease modestly for the remainder of the year.
But Ms Boniface said supply-side factors were more supportive of prices.
Growth in milk supply in key exporting regions was expected to be modest - with European production up marginally in the first half of the year, US production flat and Australian production down.
"As always, NZ milk production over spring will be a crucial swing factor for whole milk powder prices, in particular," she said.
To date, indications have been positive, with pasture conditions in many parts of the country relatively favourable for this time of the year.
"However, NZ farmers will almost certainly struggle to repeat the exceptionally good spring conditions we saw last season."
Other factors suppressing supply were Fonterra's announcement that it would not be paying a dividend for 2018/19 season and increased environmental regulations limiting herd expansion.
Westpac NZ is expecting NZ milk production this season to be up by just 0.5pc on last season.
But the bank was still cautious about its price outlook.
"If demand for dairy in China falls sharply, even limited growth in supply wouldn't be enough to stop prices tumbling, potentially by much more than we have factored in," Ms Boniface sad.
Australian index up marginally
Meanwhile, Australian analyst Freshagenda's Australian dairy export index rose this week on the back of the falling Australian dollar.
The index lifted by 0.1 points to 216.6.
Freshagenda said in spot quotes from Australasian exporters, butter was down $US36/tonne to $US4250/tonne.
SMP, WMP and cheddar prices were steady.
The Australian dollar was down, ending last week at $US0.6778.
Freshagenda's weekly spot commodity milk value for southern Australian dairy manufacturers was virtually unchanged at $6.35/kg MS.
This story first appeared on Australian Dairyfarmer