The ongoing high prices for milk is starting to show through on reduced demand both here and in the US.
Dairy commodity prices also edged higher at Fonterra's online auction, with the globalDairytrade trade weighted index rising 1.2% and the average winning price up to $US3960 ($NZ5132) from $US3908 a fortnight ago.
For anhydrous milk fat, the trade weighted price slipped 0.3% to $US5946, butter milk powder was up 14.5% to $US3880, skim milk powder lifted 2.4% to $US3579, and whole milk powder edged up 0.5% to $US3780.
ASB economist Chris Tennent-Brown said yesterday it was difficult to see world supplies increasing in the near future to put some downward pressure on markets.
Australian milk product was still struggling to get above last year's level.
The recent major rains in Queensland had not dramatically affected dairy production since the state accounted for only 5% to 6% of total Australian production.
However, the impact on feed costs would eventually become a major issue for the industry as feed prices moved up, he said.
Adding to the challenges facing milk production around the world was the continuing drought in Argentina and the smaller than expected corn and soybean crops in the US.
Recent US corn estimates reduced supply and increased demand from levels forecast the previous month.
The result was corn ending stocks would be reduced by about 25 million tonnes from last year, Mr Tennent-Brown said.
In response, corn futures increased towards levels not seen since 2007.
Official estimates of US milk production for the 2010 and 2011 market years remained unchanged from previous estimates.
Despite an increase in US exports and a drop in imports, US dairy ending stocks would remain at normal levels and be above amounts seen in the past several years.
Those stocks were expected to keep farm gate fluid milk prices about 10% below the higher levels seen in 2008.
For the first 11 months of last year, US fluid retail sales were down 1.4% from 2009 levels, the commodity index showed.
The decline was reported to be the largest drop in sales for nearly 20 years.
With the weather problems around major eastern US cities, it was unlikely December holiday purchases would push demand above that of last year.
In New Zealand, Fonterra was reporting a "dramatic" fall in sales.
The price of a two-litre bottle of milk has jumped 15c to $4.30-$4.50 after two price rises in the past five months, the result of strong global dairy commodity prices.
Fonterra Brands managing director Peter McClure, an industry veteran, told Fairfax Media it was the highest milk price he could remember, and had led to a fall of about 1% in milk sales in the past three months.
"This is more significant than it sounds given milk sales have been growing solidly at 2% to 3% for five years, boosted by Kiwis' love affair with coffee."
Mr McClure had seen shoppers shy away from buying milk during previous price spikes but said sales had recovered quickly in the past.
This time, the decline was continuing.
He could not rule out another round of price rises in March after Fonterra directors last month raised their milk payout forecast for the season to farmers from $6.60kg milksolids to $6.90 on the back of continuing strong international prices.
Mr Tennent-Brown said the ASB price index lifted in both New Zealand and US dollar terms in the past seven days.
Dairy prices firmed further while the sheep-beef index was looking strong.
US beef prices were at all-time high levels as a result of the uncertainty of Australian supply as a result of the Queensland floods and low US supply along with a combination of higher feed costs.
"Tight international beef supply will be favourable for beef prices and extremely high prices should continue over the near-term."
The New Zealand dollar beef index was up 24% on January 2010.
Sheep prices were also strong, with New Zealand schedule prices significantly higher than last year's level, he said.
The New Zealand dollar sheep value with the ASB index was up 31% on last January.
