A collapse in Chinese demand for dairy has caused global dairy prices to plummet 23 per cent since March.
This week's Global Dairy Trade auction continued the trend of recent months with the GDT price index down 5pc.
Prices of all commodities fell, with skim milk powder (down 8.6pc) and whole milk powder (down 5.1pc) experiencing the biggest falls.
The only glimmer of hope was that fat prices sustained a lower fall.
Australian market analyst Freshagenda's Steve Spencer said China was behind a big drop in world trade in dairy products in May.
"Falls in trade in China in the past six months, and if you go back a year, dwarf the changes in all other regions," Mr Spencer said in Freshagenda's weekly take.
"Trade is negative because of China's lower intake this time of year compared with last year."
Westpac New Zealand senior agri-economist Nathan Penny said the recent weakness in the Chinese economy was the likely catalyst for weaker global dairy demand.
"Data showed that the Chinese economy only grew by a miserly 0.4pc between the June 2022 quarter and the same quarter a year ago, with the COVID lockdown and associated restrictions constraining economic activity," he said.
Mr Spencer and his colleague Jo Bills said the Chinese market for WMP was completely different to last year, when stock-to-use ratios were similar.
"Last year we had the reloading of a lot of those supply chains from imported product and very strong demand in China, and this year we've got the stocks-to-use at the same point because demand has tanked and Chinese internal stocks have built," Ms Bills said.
Mr Spencer said the milk cost was a lot lower in China and milk going into non-fresh uses was being discounted.
Demand was down 5pc cent in the past few months.
"That's not going to get better real quick because we still have a great deal of uncertainty about the length of lockdowns and how severe they will be as they try to get on top of COVID," he said.
"We are a little way to recovery but it is probably pushed out a bit more.
"It has weakened the fundamentals."
Hopeful signs for future demand
New Zealand analysts are more optimistic about the market outlook, pointing to the lack of global supply.
Mr Penny said Westpac expected the Chinese economy to rebound over the remainder of 2022 as COVID restrictions eased and economic stimulus took hold.
"In fact, for the 2022 year as a whole, we still expect the Chinese economy to expand by over 5pc, with the lion's share of the growth over the second half of 2022," he said.
"That should also lead to a recovery in consumer spending and thus dairy demand over the coming months."
ASB economist Nat Keall was even more upbeat.
"Recent downward pressures on energy and grain prices will offer some relief for dairy farmers in the future, but global dairy production is a large tanker to turn around and the starting point for supply is weak," he said.
"The poor first half of the year in the European Union means there is 325,000 tonnes less milk floating about from the world's largest exporter."
Mr Keall said global prices had followed a similar trajectory last season with buyers cautiously on-hold over the winter before it became clear global production was still stuck in a rut.
"That's no guarantee the same will happen this season, but its a good reason to be focusing on the market fundamentals at this point in the season, and not only the fortnightly auction moves," he said.