The dairy industry is hoping indications of a price recovery, shown in trading on NZX's dairy futures market, will be borne out in the overnight GlobalDairyTrade (GDT) auction.
The significant falls in GDT prices in the past month have been a shock to dairy farmers and companies.
Last week Fonterra slashed this season's forecast milk payout from $5.25 to $3.85 per kilo of milk solids but with an increased dividend on top of that.
The futures market has been a fairly reliable indicator of global dairy price movements, and AgriHQ dairy analyst Susan Kilsby said prices had moved substantially higher on the NZX dairy futures market in the past week.
"Some contracts have increased by as much as $500 a tonne, so we really have seen a big lift, particularly in the later dated contracts," she said.
"In terms of the nearby contract which relates to the GDT auction that's going to happen overnight, that one has come up substantially and we basically indicate around about a 14 percent increase in that GDT price, should that play out. So that would be for whole milk powder contracts, specifically related to September delivered whole milk powder."
Ms Kilsby said Fonterra's announcement last week it was cutting back the amount of whole milk powder it would be offering on the GDT by about a third was the main driver of that.
"And this has really changed the market sentiment around where those GDT prices will be," she said.
"So, while it hasn't changed the underlying fundamentals of supply and demand, it has changed the market sentiment and I think that has now turned to be positive. How much they increase remains to be seen on GDT.
"Fonterra has reduced its GDT volumes by about a third but that product still has to be sold through other channels, so there's still too much milk around the world, and demand is still relatively weak."
