Average milk powder prices soared 23% at Fonterra's monthly globalDairyTrade internet auction yesterday.
Whole milk powder prices rose 21%, anhydrous milk fat 21.9% and skim milk powder 25.5%, as the market reversed three months of steady or falling prices.
Fonterra's globalDairyTrade manager Paul Grave said the market was driven by strong demand and tightening supply, as the Australian dairy season came to a close but wider concerns that supplies could be short.
Milk production in Australia was 6% to 7% behind last year due to an unfavourable climate, and the dry weather which had caused drought conditions in Northland was now affecting the entire upper North Island, he said.
The new dairy season in the northern hemisphere was also slow to ramp up following an extremely cold winter.
Mr Grave said it was difficult to say if economic optimism was behind the higher prices, saying the market was still showing signs of volatility.
Yesterday's auction attracted plenty of bidding and there were signs demand had picked up, but he could not say if that tone would continue.
The average price for whole milk powder was $5670 ($US3969) a tonne, $982 higher than the March sale.
Prices ranged from $5364 to $6042.
The rise in the average price of anhydrous milk fat since the March sale was even greater at $1240 a tonne, with an average price of $6895, while skim milk powder rose $1064 to an average $5245.
