International dairy prices eked out a 1.7 per cent gain at the latest GlobalDairyTrade (GDT) auction, well short of market expectations of a 5 to 10 per cent increase.

LISTEN ABOVE: NZ Herald reporter Jamie Gray speaks with Rachel Smalley about the latest GDT auction

Whole milk powder prices - which have the greatest bearing on Fonterra's farmgate milk price forecast - eased by 0.2 per cent to US$2782 a tonne, ending a firming trend that started in early July.

Aside from whole milk powder - the biggest product by volume on sale on the GDT platform - prices were up across the board.

Among Fonterra's other "reference" products, skim milk powder prices were up 3.0 per cent to US$2293 a tonne, butter milk powder by 7.0 per cent to US$2276 a tonne, and anhydrous milk fat by 4.6 per cent to US$4998 a tonne.

Analysts said price trends over the next two months - the peak of the New Zealand production season - will be important to determine whether or not the market is recovering after two successive seasons of very weak prices.

Dairy prices - aside from a brief spike higher around this time last year - have been depressed for the last two seasons because of world oversupply - particularly from the European Union - and slack demand from China.

Jon Spainhour, a broker and partner at Chicago-based dairy specialist Rice Dairy, said this morning's auction was a sign that prices are consolidating after a sharp run higher over the last month or so.

"The futures market had priced in higher expectations but I think that if we really look at what happened here, this is still a fairly decent result," he said.

"We have moved significantly higher over the course of the last month and a half. We have gained a lot of ground, especially in whole milk powder," he said.

"We have consolidated at a higher price and that to me is a good sign," he said.

Fonterra is set to release its annual result on Thursday and market expectations are that the co-operative will report one of its biggest profits since its creation in 2001.

The result will also contain comment on the milk price, which is currently set at $4.75 a kg of milksolids. An upward revision to the forecast so soon after the last forecast on August 25 was seen as possible but not likely.

Under its enabling legislation, DIRA, Fonterra has to review its farmgate milk price every three months.

Among the other gains, butter prices were up by 3.6 per cent to an average price of US$3,892/tonne, cheddar by 2.2 per cent to US$3,518/tonne, lactose by 3.7 per cent to US$815/tonne and rennet casein by 2.0 per cent to US$6,893/tonne.

- NZ Herald