Wet weather, which cut milk production, also helped boost prices at the previous auction.

Staggering, whopping, rocketing - dairy analysts have been searching for superlatives to describe the latest leap in world dairy prices as whole milk powder (WMP) climbed by 19.4 per cent overnight.

WMP prices are the key price signal for Fonterra, which uses them to set its farmgate milk price for farmers. Milk futures broker Nigel Brunel described the result as "staggering" and a "massive" rise which was a great break for hard pressed dairy farmers.

"This is a real punch through number. We might get a correction after this but buyers will be scrambling for product."

Good news for dairy farmers after prices jumped at the overnight auction.

Overall world dairy prices spiked by 11.4 per cent at the GlobalDairyTrade auction. The average price was US$3327 per tonne.

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WMP climbed to US$3317, after a 2.9 per cent gain two weeks ago. Fonterra has said the price for WMP needs to reach US$3000 a tonne by about mid-autumn.

Since August WMP prices have risen close to 50 per cent after languishing for months. The index is at its highest level since July 2014.

Brunel said that based on the latest result the final 2016-17 payout might reach $6 per kilogram of milksolids - "a little optimistic perhaps but you'd have to say after last night's result that a $5.25 kg/ms forecast is probably a tad pessimistic".

RADIO NEW ZEALAND Prices have risen sharply in the latest dairy auction. The average price climbed more than 11 percent overnight to $300,327.00US dollars a tonne.

ASB economist Nathan Penny raised the prospect of the payout price going higher than $6 - the "bullish" figure the bank has been picking since the beginning of the season.

"This result reinforces our 2016-17 milk price forecast of $6.00/kg. At the same time, we note the growing risk that the milk price surpasses our already bullish forecast this season.

"If NZ production is indeed as weak as we now anticipate, then prices are likely to remain at current levels or lift further. In this respect, we see an increasing probability that this season's milk price lifts above our current $6.00/kg forecast," Penny said.

Federated Farmers dairy spokesman Andrew Hoggard welcomed the news but said he would not be popping the champagne corks until Christmas, provided prices held up.

Buyers were responding to news that New Zealand and Australian production would be down, Europe was flat and only the United States was showing signs of an increase. While the US potentially could export 15 per cent of its production, if there was good domestic demand the figure would be less.

But Hoggard cautioned New Zealand production was variable.

"In Waikato it's been down by 14 per cent because of the wet but Waikato isn't the centre of the universe. Southland has had a pearler of a spring and in Canterbury it's not been bad. Both are significant centres for dairy."

Brunel said the milk market had been a "real interesting one" over the last 10 months, and showed how volatile it was.

"It's the most volatile commodity I've seen in 30 years of trading, because it's a perishable product. From December it was trading sideways at about US$2300 a tonne, then since July it's taken off."

Westpac economist Anne Boniface said the latest result came during a critical period for farmgate milk prices and had given farmer incomes a considerable boost.

"Markets seem to have belatedly responded to Fonterra's reduced milk flows and consequent decision to reduce the volume of product on offer on the GDT platform over the next 12 months.

A further downgrade last week seems to have induced a bigger reaction last night. In addition, last night's auction saw a big lift in Chinese demand," Boniface said.

Westpac would be possibly revising its earlier forecast of $5.30.

There were 166 participating bidders, with 27,735 tonnes of product sold. Prices rose 1.4 per cent at the previous auction, following a 3 per cent dip which ended a run of price increases.

* Audio courtesy of RNZ