Fonterra's farmers are facing the prospect of a big cut on Friday to their forecast payout for this season.
Prices fell for the 10th consecutive time at the overnight GlobalDairyTrade auction, with the GDT Price Index falling by 9.3 percent.
Whole milk powder, a crucial product for New Zealand, fell by 10.3 percent on average to US$1590 per metric tonne (MT). Skim milk powder prices slumped by 14.4 percent to US$1419/MT on average.
Fonterra's board will meet on Friday to review the forecast milk payout price, with an announcement expected around 3pm.
The current forecast of $5.25 per kilogram of milk solids (kgMS) is widely expected to be cut by more than a dollar. Some analysts think it could be cut to below $4.
AgriHQ dairy analyst Susan Kilsby says: "Farmers now face two consecutive seasons of extremely low milk prices. Very few farmers will be able to turn a profit at such a low milk price.
"A $1/kgMS drop in the milk price equates to approximately $2 billion less income for dairy farmers."
The break-even point for farmers, who are now facing the prospect of two bad seasons in a row, is $5.70.
She says the published average sale price was just US$1815/MT, but much of the product sold below this price.
Rural Value said last week there are signs the weak global dairy prices are having an impact on farms prices and sales, with some potential buyers waiting to see where prices go in the next few months and whether there will be any distressed sellers.
The New Zealand dollar has fallen this morning. It's partly because of the auction result, but also because the US dollar is gaining strength against other currencies, due to speculation the US Federal Reserve could start hiking interest rates next month.
The kiwi is trading at 65.40 US cents, after at one point being as low as 65.20. It was 65.63 cents at 5pm yesterday.
The Wall Street Journal has quoted Federal Reserve Bank of Atlanta president Dennis Lockhart as saying the US economy is ready for the first increase in interest rates. A rise in rates will make the US dollar more attractive to investors.
That would mean the US is set to hike rates from near zero levels at the same time that New Zealand's Reserve Bank is cutting the official cash rate.
The kiwi has fallen to 88.61 Australian cents, from 89.20. It is 41.94 British pence and 60.09 euro cents.
The overnight auction came hours after the latest ANZ Commodity Price Index suffered its largest monthly fall.
The index slumped 11.2 percent last month, its fourth consecutive fall. It is now at its lowest level since October 2009 and has dropped 26.8 percent over 12 months.
Dairy prices led the declines this month, falling 23 percent from June. Whole milk prices have fallen by 35 percent in a month.
But other sectors are suffering as well.
Aluminium prices fell 2.6 percent (down 15 percent from July 2014).
ANZ says forestry prices slipped 2.2 percent over the month, largely due to a 3.5 percent fall in log prices. Like dairy the forestry exports are under pressure because of softer Asian demand, in particular China.
The good news for New Zealand was that beef prices rose by 5.4 percent, thanks to strong demand from the US market.
That offset declines in lamb (down 2.7 percent) and wool (down 4.2 percent).
The higher New Zealand house prices rise, the more people wonder whether there could be a crash.
New Zealand property values are 10 percent higher than they were a year ago.
Financial advisor Martin Hawes appeared on the Paul Henry programme this morning and said the real concern was the pace at which Auckland prices are rising – $511 a day, or $3575 a week on average.
He said if prices continued to rise at this pace, in two years "we're looking at the average house price in the old Auckland City Council area to be at $1.5 million and if it's the same in five years, then it's actually near enough to $2.5 million".