LISTEN: Jamie Gray of the NZ Herald speaks to Rachel Smalley about the dairy price jump
Dairy prices - aside from a brief spike higher around this time last year - have been depressed for the last two seasons because of world oversupply - particularly from the European Union - and slack demand from China.
Jon Spainhour, a broker and partner at Chicago-based dairy specialist Rice Dairy, said this morning's auction was a sign that prices are consolidating after a sharp run higher over the last month or so.
"The futures market had priced in higher expectations but I think that if we really look at what happened here, this is still a fairly decent result," he said.
"We have moved significantly higher over the course of the last month and a half. We have gained a lot of ground, especially in whole milk powder."
"We have consolidated at a higher price and that to me is a good sign."
The Zealand dollar, having pushed higher towards US73.60c on Tuesday night, fell on the back of the result, consolidating this morning at around US73.00c.
AGriHQ said in a commentary that some of the steam had gone out of the international dairy market after a strong run.
"The result, particularly for wholemilk powder, is disappointing, as we have recently been seeing good momentum in dairy commodity prices," it said.
"A steadier increase - rather than the large jumps of the last few GDT events - will be more supportive to the market, however."
Most of the demand at the auction came from China.
Fonterra is set to release its annual result on Thursday and market expectations are that the co-operative will report one of its biggest profits since its creation in 2001.
The result will also contain comment on the milk price, which is currently set at $4.75 a kg of milksolids. An upward revision to the forecast so soon after the last forecast on August 25 was seen as possible but not likely.
Under its enabling legislation, DIRA, Fonterra has to review its farmgate milk price every three months.
Among the other gains, butter prices were up by 3.6 per cent to an average price of US$3,892/tonne, cheddar by 2.2 per cent to US$3,518/tonne, lactose by 3.7 per cent to US$815/tonne and rennet casein by 2.0 per cent to US$6,893/tonne.