Prices have risen in the global dairy auction overnight.
The average price rose 3.5 percent to $US3622 a tonne.
Dairy cows in a milking shed in New Zealand. Photo: 123RF
The price rise followed a 4.5 percent rise at the previous auction and is the fourth consecutive positive result.
The important whole-milk powder price has risen 4.9 percent to $US3593 a tonne.
This is comfortably in the break even range for farmers who budget on about $US3000 a tonne to cover the cost of production.
A driving factor for the lift was the drop in Fonterra's milk production.
Waikato milk production was down 14 percent in October and the co-operative is expecting milk collections to be nearly 7 percent less this season compared to 2015/16.
Dairy prices have risen more than 50 percent since July, and have more than doubled from their historic lows in the middle of last year.
Global dairy prices rose 3.5 percent overnight, the fourth consecutive positive result. Graphic: Global Dairy Trade
ANZ has bumped its forecast to $6.25 per kilo of milk solids, Westpac to $6.20, BNZ to $6.40, while ASB said there was upside risk to its forecast at $6 - which was inline with Fonterra's farmgate forecast.
Westpac economist Anne Boniface said there was no doubt that fundamentals had moved in favour of dairy producers.
"Global supply is tightening, and there are more positive signs on the demand front, particularly out of China," she said.
But she warned it was not all plain sailing.
"One of the reasons supply has tightened to a greater extent than expected, has been poor spring conditions in key dairying regions in New Zealand. For some farmers in places such as the Waikato, Bay of Plenty and Northland, the gloss will have been taken off improved prices, by the sharp fall in production sustained during October and early November," she added.