Dairy prices have reached their highest level since early February with a 3.6% increase in this week's GlobalDairyTrade auction - the fourth consecutive gain.
Whole milk powder prices recovered from the last of March's slump, rising 5.2% while very strong demand for milk fat continued to push anhydrous milk fat and butter prices higher.
Skim milk powder remained something of an unwanted by-product, with prices edging down 0.9%, Westpac economist Sarah Drought said.
While demand from China remained solid and was helping to put a floor under prices, dairy prices seemed to be responding to concerns about New Zealand supply beause of recent poor weather, she said.
This season's production was ''largely done and dusted'' and it was not clear that next season's production would be significantly affected.
European production had turned in recent months and was expected to trend higher over the remainder of the year as farmers responded to higher farmgate prices. Rising global supply was expected to weigh on prices over the second half of the year.
Westpac was forecasting a $6 farm-gate milk price for the current season, in line with Fonterra's forecast, but it might well be a touch higher, Ms Drought said.
ASB senior rural economist Nathan Penny expected production to fall by up to 2% compared with last season.
Production would vary widely across the country by season's end. Some areas of the North Island were likely to be well short of that number, whereas production in many South Island areas might be close to or on a par with last season.