Dairy producers in the US cautioned over expectations of a continued rise in milk prices, despite their recovery which, last week, made them the best-performing agricultural commodity.

Dairy prices at the latest globalDairyTrade auction, last week, jumped by 7.8%, a rate beaten only twice in the past two years and taking to 17% their recovery since mid-May.

"Strong gains were observed across all product categories," Luke Mathews at Commonwealth Bank of Australia said, rating dairy the "best-performing agri commodity class" last week and forecasting further gains.

"We retain an optimistic outlook for dairy pricing over the next year, largely because of an expected decline in northern hemisphere milk production," he said.

'Demand spike'

Separately, Fonterra also sounded an upbeat note, saying that its exports in the May-to-July period, the last quarter of its financial year, had hit a record 620,000 tonnes

Fonterra's record end-of-season quarter has been the Co-operative's biggest ever May, June, and July – with 620,000 metric tonnes of dairy products loaded on ships for export to over 100 markets around the world.

"Demand is usually up ahead of the month of Ramadan, but the demand spike was more than anyone had expected," Fonterra said, estimating average exports for the quarter at 450,000 tonnes.

The boom prompted the group, for the first time, to charter its own break- bulk vessel to carry exports to Dubai and Saudi Arabia.

Resilient US output

However, the Milk Producers Council, based in California, the top US milk-producing state, cautioned that the price rises may reflect some "curious anomaly" rather than fundamental drivers which would bring further price increases.

US output is, despite the spread of drought, still increasing, if at a rate which slowed to 0.7% last month, US Department of Agriculture data showed.

"Production per cow, expected to be lower because of the heat and feed costs, was up by 7 pounds for the month," the MPC's John Kaczor said.

While the size of the US dairy cow herd "continues downward", the decline is "at a slower rate than expected".

'Not likely to be a global shortage'

Furthermore, output from the main southern hemisphere exporters, approaching their important spring flush period when cows turned out to pasture see a jump in production, remains buoyant, growing 5.5% in Australia in May and, reportedly, 12% in Argentina.

In New Zealand, the top dairy exporter, May output was 11.4% higher than a year before, "and their pasture conditions are reported to be in about the same excellent shape they were in last year", Mr Kaczor said.

New Zealand-based consultancy Agrifax said that pasture conditions in the first half of August were 12% above the seasonal average, thanks to warm, wet weather which "is good for pasture growth in the immediate term".

Mr Kaczor said: "Even with US milk production backing off, there is not likely to be a global shortage of dairy products for international consumption.

"While these price increases are welcome to see, it remains to be seen if they will continue moving upward or even hold where they are."