Prices lifted a further 9.9% in this week's GlobalDairyTrade auction and there were strong gains for whole milk powder (up 12.9%) and skim milk powder (up 13.4%).
Underpinning Westpac's new forecast was the assumption of a further modest bounce in the next couple of GDT auctions, an El Nino-induced drought of moderate severity and a pullback in prices early next year, once the drought threat had passed its peak.
With global milk production still ample and demand subdued, the bank remained sceptical about a sustained rebound in prices and its milk price forecast of $5.20 for next season remained unchanged, senior economist Michael Gordon said.
The global dairy market had reacted strongly to Fonterra's predictions of a drop in milk production this season and prices were up 63% from their lows two months ago.
Notwithstanding the threat of drought over this summer, Westpac believed the drop in production was now at risk of being overstated and international prices could soften again by the end of the season.
ASB senior economist Chris Tennent-Brown said it was pleasing to see bidders coming back to the GlobalDairyTrade events.
There were 180 participating bidders this week, while there were about 130 when prices were at their weakest.
While ASB's milk price forecast of $5 by season end suggested farmers' incomes should be a little better than expected a few months ago, their spending was likely to remain conservative well into next year, he said.
