International dairy prices stabilised at GlobalDairyTrade, easing concerns that an upgrade by estimate for milk output in New Zealand, the top exporter, would extend a softening in values.
A dairy index compiled by GlobalDairyTrade, the international dairy auction run by Fonterra, rose 0.3%, taking the average selling price to $4,880 a tonne.
While prices of skim milk powder, milk fat and milk protein concentrate showed small declines, values of whole milk powder, which makes up the bulk of volumes sold, cheddar cheese and butter increased.
The result defied some expectations that values, which fell 1.1% at the last auction, earlier this month, would extend their decline on talk of a strong start to the production season in New Zealand stoked by Auckland-based Fonterra the world's top dairy exporter.
'Little bit surprising'
"I would call the result a little bit surprising, given what Fonterra said," Kyle Schrad, risk management associate at INTL FCStones dairy division, said.
"The result is slightly higher compared to expectations. Fonterra's idea of higher production on the face of it looked bearish for prices."
Fonterra last week raised to 5% its estimate for New Zealand milk production growth in 2013-14, saying output in the first three months had run 3.5% higher than a year before.
Year on year increases will be easier to score later in the season, after the drought-affected close to 2012-13.
Smaller rival Westland said that milk supplies have been 5% ahead so far this season.
Price support may also have come from a cut by Fonterra to forecasts for volumes marketed through GlobalDairyTrade, in a bid to divert more through higher-value channels, with the amount sold at Tuesday's event, at 46,664 tonnes, down 12.7% from the previous auction.
'Still very tight'
Ideas on demand have been strong too, boosted by talk of weak domestic output growth in China, the top dairy importing country.
"Despite the spring flush in Oceania creeping nearer," bringing a seasonal spike in volumes, "global markets are still very tight", Rabobank said.
"Emerging concerns about struggling Chinese local milk production will serve to amplify the scarcity of product availability."
Meanwhile, in the northern hemisphere, the US Department of Agriculture last week lowered by 300m pounds, to 201.8bn pounds, its forecast for US output this year, "reflecting slower growth in milk production".
The Milk Producers Council said: "Weeks of above normal temperatures have crimped milk production in most of the country.
"Producers in southern California and Arizona have further struggled with heavy rains."
The drop in production has "helped to put a bid under dairy product markets over the past few weeks, and cream multiples have climbed".
The firm market has also fostered a rise in milk prices offered to farmers in many geographies, including New Zealand, where Fonterra, Synlait and Westland have announced a succession of increases.
In the UK, supermarket Sainsbury on Monday revealed plans to raise its price by 1.97p per litre to 34.15p per litre.
Such rises, at a time when feed costs are being eroded by a decline in grain values, promise the potential for a two-way boost to producers' margins.