Dairy prices have risen sharply overnight in the latest Global Dairy Trade index, reversing months of falling auction prices and delivering a surprise uptick for farmers.

While farming was one of the bright spots in the economy last year, there were fears it had peaked after the trading index fell nine times in five months, accelerating its decline.

Last year Fonterra dropped its farmgate milk price, reflecting the weakness of global dairy prices and cited strong milk flows from New Zealand, Europe and the United States.

But the latest auction has delivered a significant increase, with dairy prices up 6.3 percent.

The New Zealand exchange's head of dairy insights Cristina Alvarado said an increase was expected, but the magnitude was well above expectations.

Advertisement

Whole milk powder prices were up more than 7 percent, skim milk 5.4 and butter 3.8.

The auction index had been falling steadily, mostly due to more milk being supplied and demand steady or falling.

But the latest auction saw the reverse, with total volumes down but demand up.

The most notable shift came from the Middle East, where the share of buying doubled to one fifth of purchasing.

Alvarado said total volumes for sale declined as New Zealand milk production was now past its peak.