Rabobank expects dairy prices to recover by Christmas following a big drop in milk prices in the latest Fonterra GlobalDairyTrade auction.
Benchmark whole milk powder prices fell by 5.4 percent, which is the lowest price since January last year.
Rabobank dairy research head Hayley Moynihan said milk prices were expected to remain at current levels until Chinese companies sold their large inventories of milk powder.
"Most dairy farmers have been expecting a reduction from those exceptionally high dairy prices of the last season, and prices in historical terms still remain at good levels, so this is not a price crash, it's an easing from record high levels," she said.
However, it was still early in the season, from New Zealand's perspective, and sales did not tend to pick up until September through until December.
"So the price levels through those months will be what will really guide farmer fortunes for the season, so I think it's early days yet for them to be too worried," Ms Moynihan said.
However, a rural economist at ANZ Bank was more bearish about milk prices over concerns that Chinese demand would not pick up any time soon.
Con Williams said ANZ was surprised by the sharp decline in milk prices in the latest auction and had downgraded its milk price forecast to $6.25 a kilo of milk solids as a result - below Fonterra's forecast of $7.
