Lingering doubts about New Zealand supply conditions helped drive dairy prices sharply higher at this morning's GlobalDairyTrade auction, with the GDT price index gaining 5.9 per cent since the last sale in mid-January.

Whole milk powder prices, which have the greatest bearing on Fonterra's farmgate milk price, firmed by 7.6 per cent to US$3226/tonne - the third gain in a row since falling to US$2755/tonne last December - and thereby reinforcing the co-op's current forecast of $6.40/kg of milksolids for the current season.

Price gains were across all seven of the product groups on offer.

Among the other Fonterra reference products, skim milk powder firmed by 7.2 per cent to US$1932 a tonne, buttermilk powder by 8.4 per cent to US$2039, butter by 7.9 per cent to US$5277/tonne and anhydrous milk fat price rose by 0.5 per cent to US$6581/tonne.


The average price was US$3553/tonne.

Dry weather during much of summer was expected to make its presence felt at the auction, due to diminished milk supply.

Fonterra has said that it expects production to fall by 3 per cent over this season, compared with last, due to drought in parts of the country.

ANZ rural economist Con Williams said the gains so far this year in GDT prices would bring year-to-date milk price indicators back in line with Fonterra's $6.40/kg milksolids forecast.

"The improvement was driven by lingering New Zealand supply concerns and more price sensitive buyers filling the Chinese post New Year void," he said in a commentary.

"Price sensitive buyers have also been aided by a lower US dollar at recent auctions," he said. Williams said supply developments in New Zealand would remain important.

"Things remain fairly patchy around the country at present and most still seem to need more follow-up rain to avoid an early-end to the season," he said.

ASB Bank rural economist Nathan Penny said today's strength reinforced the banks' more optimistic 2017/18 milk price forecast of $6.50/kg.


"On the production side, we expect the improved weather will lead to production growth of 1 per cent compared to last season," he said.

"That said, there will be wide variations across the country given the varying extent of storms, drought and rainfall," Penny said.