Dairy prices posted a seventh consecutive gain in this week's GlobalDairyTrade auction, boosted by a solid 6% gain in whole milk powder prices.
The headline index was up 3.3% and whole milk powder prices were now at their highest level since the middle of last year.
Westpac senior economist Anne Boniface believed concerns about the impact of recent dry weather on New Zealand production was one of the factors underpinning the most recent lift in milk prices.
While there had been some rain in parts of the country in recent weeks, there had not been enough for many farmers, Ms Boniface said.
DairyNZ said dry weather nationwide meant dairy farmers were now reaching ''crunch points'' on feed planning, milking frequency and drying off.
Ms Boniface said Fonterra had downgraded its outlook for growth in milk production this season and was now expecting 2% growth in its milk collections. Previously it was 3%.
''We expect some of the price increase we've seen over the last month or so may be unwound when weather conditions normalise,'' she said.
Looking further ahead, a combination of slower growth in New Zealand milk production in the 2019-20 season, and ongoing modest growth in European and US dairy production in 2019, steady demand from China and a weaker New Zealand dollar should all help support a modest lift in farm-gate milk prices next season, she said.
Westpac had lifted its forecast for this season from $6.30 to $6.40 and from $6.75 to $7 for next season.
Last week, Fonterra lifted its own milk price forecast for this season from $6-$6.30 to $6.30-$6.60.
ASB senior rural economist Nathan Penny said the latest data showed production as 5.6% ahead of last season on a season-to-January basis, but the bank believed that was ''as good as it gets'' for New Zealand production.
Production had slowed in Waikato over February and now early March, given the hot and dry weather.
The ANZ world commodity price index pushed up 2.8% in February, continuing the upward shift that began in January.
ANZ agriculture economist Susan Kilsby said positive price movements were recorded for most sectors but a 6.6% lift in dairy prices was the main driver.
