Fonterra's chances of reaching its forecast farmgate milk price for this season have improved after whole milk powder prices rose at the Global Dairy Trade auction.
The price jumped 4.2 per cent to US$2886 ($NZ4070) a tonne on Thursday morning after Fonterra said it expects its New Zealand milk collection for the 2017/18 season to be 3 per cent below last season as dry weather stunts grass growth and lowers milk production.
That prompted dairy analyst AgriHQ to increase its milk price forecast for the current season by one cent to $6.10 per kilogram of milk solids, the first time it has moved higher since October but still lagging behind Fonterra's forecast of $6.40/kilograms of milk solids.
"The likelihood of reaching this forecast has now improved given that whole milk powder prices are tracking higher again," said AgriHQ's Susan Kilsby.
Fonterra expects to collect 1480 million kgMS in New Zealand this season, down 3 per cent from the 1525 million kgMS it collected in the 2016/17 season.
The cooperative said wet conditions experienced by farmers at the beginning of spring improved from late October into November, but the recent dry weather was impacting pasture quality across the country.
Dry conditions are expected to continue, and even if it rains as forecast in early 2018, it will not be enough to bring production back to previously anticipated levels, it said.
New Zealand supplies more than half the whole milk powder traded around the world, so changes in local production have a big impact on the global market, Ms Kilsby said.
On the other side of the ledger, demand for whole milk powder remained steady with China, the largest buyer, continuing to use imported product to make up the shortfall in its own domestic milk production.