HOW milk processors budgeted movements in the Australian dollar will affect farmgate milk prices in the next six weeks.
Dairy Australia analyst Norman Repacholi said dollar movements against those hedged by milk processors had the potential to impact more on farmgate prices for the rest of this season than commodity prices.
Mr Repacholi said most companies would sell product from March forward during this period.
"We are three-quarters through the season, everything (available) from March will be sold in the next couple of weeks," he said.
While there was "some potential there" for improvements in farmgate prices this season, Mr Repacholi said he wouldn't want to guarantee two step-ups as it would greatly depend on the budgets of individual milk processors.
The Australian dollar has averaged US$1.04 this year with the lowest US$1.03 in October.
During the 2008-09 season, the Australian dollar averaged US89c dropping to US69c for two months.
This season, Victorian farmgate prices averaged $5.14 a kilogram of milk solids, or 39 cents a litre.
Victorian farmgate milk prices were expected to close this season down 10-15 per cent compared with last year.
For many, this is below the cost of production.
Prices at online auction Global DairyTrade increased 2.4 per cent last week to average US$3598 a tonne. This was the fourth-straight rise in prices with whole milk powder recording an increase of 5.4 per cent to US$3468 a tonne.
Last week, Fonterra reassured customers none of the New Zealand dairy products offered at the auction had been manufactured when small levels of chemical DCD was detected.
Total product volumes sold were down about 2000 tonnes from last auction at 38,232 tonnes.
Mr Repacholi said the strong auction result also reflected buying by China, which was stronger at the beginning of each calendar year, due to tariff concessions with New Zealand.