Prices have risen significantly in the global dairy auction overnight.
The average price rose 12.7 percent overnight to $US2731 a tonne.
It followed a 6.6 percent rise at the previous auction.
The important whole milk powder price climbed by 18.9 percent to $US2695 a tonne.
Prices need to hit about $US3000 a tonne for farmers to break even, but this is the highest the index has been since October last year and all the commodity prices are up by at least 2 percent.
Change in GDT Price Index August 2016. Photo: www.globaldairytrade.info
Federated Farmers said the significant rise at the auction would be a pick-me-up for farmers hit by low prices and bad weather during calving.
Dairy chairman Andrew Hoggard told Morning Report a couple more increases, followed by stability, would make farmers hopeful of a better payout - and already it looked as though it would at least not drop further.
He said prices were rising because farmers in New Zealand and abroad were scaling back production, stockpiles were reducing and demand was stronger.
"The feeling from around the world is that the sort of supply correction is happening in many countries" - Andrew Hoggard
ASB Bank rural economist Nathan Penny said the bank was sticking with a forecast payout of $6 a kilo of milk solids by the end of the season.
But he said there were still headwinds, including a high New Zealand dollar and the weather.
"If we do get favourable growing conditions, that could slow the production slide," he said.
"We're more confident than we were previously, but still another ten or so months of the season to go."
Mr Penny said dairy prices might stabilise at the current level over the next month or so.