It was the 18th auction decline during the past 20 fortnightly auctions, and while down in total only 1.1%, the mainstay auction product, whole milk powder, slumped 7.7% and offset all other product gains.
Aside from increasingly strong production from international competitors, New Zealand farms are themselves producing 4% more milk than than a year ago, which does not help drive price rises.
Last season's record more than $13 billion payout could be slashed by $6.6 billion to $6.4 billion.
Taieri dairy farmer Peter Horne said debt levels of each farmer were now the telling point on the value in the milk price per kilogram.
''Most farmers struggle to make milk [profitably] at $4. Then add $1.70 to $1.90 of debt, and most are unable to do it below $6,'' he said.
Asked if he was surprised at the latest auction decline, he said he had hoped the price ''had hit the bottom'' a fortnight ago.
He disagreed with some analysts' predictions of a low $4 per kilogram range, saying Fonterra had some forward contracts at $5 offering ''a wee bit of insulation'', but he expected Fonterra would announce a $4.70 to $4.80 payout next week.
Mr Horne, who runs 850 cows on 277ha, said whole milk powder prices had to be about
$US3500 a tonne to get a $5.30 payout, but at the present $US2500 per tonne, the payout could be about $4.70.
He expected dairy farmers would be ''clamping down on extra spending'', and reducing capital outlays, such as repairing machinery instead of replacing it.
The 50% price decline so far this year, at its lowest level in more than five years, is expected to wipe about $6.6 billion from the economy, or more if the decline continues.
Last season's record payout from Fonterra was $8.40 a kg, Fonterra's current estimate was $5.30, but that will be restated next week by the company.
Dairy exports have led an overall 40% plunge in exports to China, last week
delivering a larger-than-expected trade deficit, of imports against exports, of $908 million - the largest deficit in six years.
AgriHQ dairy analyst Susan Kilsby said if the latest auction prices were achieved across the entire season, it would equate to a milk price payout of $3.65, BusinessDesk reported.
Analysts expect the payout to fall below $5, but sharebroker Forsyth Barr believes it could be down more than $1 to $4.25, while AgriHQ has shaved its estimate by 30c, to join the brokerage at $4.25.
Forsyth Barr broker Andrew Rooney said following another weak performance by whole milk powder, the theoretical farm gate milk price was about $4.25, against the current $5.30 forecast.
''Fonterra has continued to highlight that it expects a rebound in whole milk powder pricing, however this has not eventuated. We expect a material downgrade to the farm gate milk price next week,'' Mr Rooney said.
ASB rural economist Nathan Penny said it was now a ''shoo-in'' that Fonterra would next week downgrade its 2014-15 forecast, with ASB expecting an 80c cut to $4.70 for the season.
''Moreover, risks are rising that some of the dairy price weakness continues into the 2015-16 season. Last night's auction reaffirms that prices remain weak and have yet to find a clear bottom,'' Mr Penny said.
He highlighted that global milk production overall ''remains strong'' and demand from buyers was ''soft''.
Ms Kilsby said the outlook had worsened.
The NZX whole milk powder futures contracts had slumped about 20% during the past fortnight. Contracts scheduled to expire in April to June 2015 dropped the most, indicating a further slowing in the price recovery.
Data released on Tuesday showed New Zealand's milk solids production climbed 5.4% in October from the same month a year ago.
''That is an extra 143,000 tonnes which is a lot of extra milk to sell, particularly when the markets are as weak as they are at present,'' Ms Kilsby said.
Auction results: Rennet casein jumped 9.3% to $US7255 a tonne, while anhydrous milk fat rallied 9% to $US3817 a tonne, and butter milk powder climbed 8.8% to $US2560 a tonne.
Butter gained 7.3% to $US2849 a tonne, skim milk powder rose 5.7% to $US2423 a tonne, and cheddar rose 5.2% to $US3017 a tonne. Sweet whey powder was at $US1205.
