The Global Dairy Trade (GDT) has seen the largest decline since April this year, with a 4.3% decline at the GDT auction overnight.
NZX Economist Amy Castleton told REX Today host Dominic George that the biggest result was a massive 8% decline in Whole Milk Powder (WHP).
"Not a great result to wake up to this morning, to be honest," she said.
While a bit of a decrease was expected as New Zealand moves into peak milk production, such a low price of US$2864/t (NZ$4683/t) hasn't been seen since June 2020.
Castleton explained that whole milk powder is about half the volume on GDT and its value plays a huge role in the valuation of Kiwi exports.
"It's the biggest determinant of milk price for New Zealand so it's fairly significant for us.
"A long time since there's been sub $3000/t and also now well under the five-year average so quite a lot lower than we have seen for a while now."
She said the fact that there was more milk powder available in the latest auction likely plays a part in the price decrease but doesn't tell the full story.
"There is volume coming on from New Zealand and they expect it to keep going so they are not willing to pay those higher prices that we have been seeing most of May.
China's tariff window ends this year, so as of the first of January 2024, all of New Zealand's milk powder can go into China tariff-free. Currently, there is a certain volume that goes in at 0% before a 10% additional rate applies, which Castleton believes could be impacting the sudden change in value.
"We suspect China is starting to buy is probably starting to buy some of their volume that they want and need in anticipation of meeting that deadline."
She hopes such a sudden drop is a relative one-off, but said it is possible a few more declines might be on the horizon until a clearer picture of what milk production is doing around the globe.
Check out the full analysis from NZ here.
Listen to the full chat between NZX Economist Amy Castleton and Dominic George above.