The prices of milk and dairy products reached close to 17 percent overnight at Fonterra's online auction. All contracts, across all product lines, have an average selling price of US3562 a tonne.

Prices for whole milkpowder, Fonterra's main product, increase 18.8 percent this morning to $US3522 per tonne.

Fonterra's global dairy trade manager Paul Grave considered the price increase as a sign of strong market activities ahead. Another internet auction is scheduled on September 16. Internet auctions will be held twice a month afterwards.

According to Grave, “Having two events a month will provide a lot more visibility when it comes to assessing the market direction.”

The average rise of 16.9 percent for all dairy commodity prices broke the downward trend over the past four months. Declining prices averaged 8.3 percent in August, 13.7 percent in July, 3.5 percent in June, and 0.8 percent in May.

In August, Fonterra directors reviewed the forecast payout for 10,500 New Zealand farmers. However, the directors decided to maintain the payout at $6.90 - $7.10 a kilogram of milksolids because of expected rise in prices later in the year.

In May, The world's largest exporter of dairy products forecast a higher payout for next season due to a rising demand for milk products in Asia and limited supply of dairy commodities worldwide.