Prices fell at the Global Dairy Trade auction on Tuesday evening.
The index was down 3.6 per cent to an average price of $US3044 - the lowest price this year.
The fall was led by a big drop in the butter index, down 8.5 per cent to $US4392.
The key whole milk powder index was down 2.1 per cent, the skim milk powder index was 1.3 per cent and the cheddar index was down 4.7 per cent.
The only upside was the rennet casein index, up 2.8 per cent.
The fall continues the trend since the beginning of June, with prices falling since then.
The fall comes despite concerns about production in Europe in the wake of drought there.
Dairy Australia industry analyst Sofia Omstedt said a hot and dry summer continued to cause headaches for dairyfarmers.
"The remarkably cold winter delayed pasture growth and resulted in cows being housed for longer," she said.
"Fodder shortages developed in Ireland and caused significant financial stress.
"Following the cold winter, an exceptionally hot and dry summer emerged.
"The hot weather has affected the fodder and grain outlook and Europe looks set to produce the smallest grain harvest for six years."
Ms Omstedt said sustained fodder shortages in several key producing countries could restrict milk production if current conditions continued, offering some hope of higher milk prices.