Wellington, Sept 2 NZPA - Farmers say they are delighted by today's 24.2 percent average lift in whole milkpowder (WMP) prices at Fonterra's latest internet auction.

It was the second consecutive month of strong gains to lift the average price of whole milkpowder by over 55 percent from the five-year low hit in July.

"It is a big relief for dairy farmers to see the price of WMP still tracking up on the back of last month's 25.8 percent lift," said Lachlan McKenzie, the chair of Federated Farmers' dairy section. "Today's increase to $US2858/tonne is a sure sign there is light at the end of the tunnel," he said. The price was a 12 month high. "If these prices are sustained, it is possible they will counter the effects of the high New Zealand dollar on this season's average payout."

A sustained recovery will mean the commodity price is improving faster than the high NZ dollar exchange rate is eroding earnings needed for Fonterra to meet its $4.55/kg payout forecast.

CRA International, which manages Fonterra's internet-based sales platform, GlobalDairyTrade, said the average price set of $US2858/tonne was $US557 per tonne higher than in August, and prices ranged from $US2765 to $US2940.

Fonterra's managing director, of global trade, Kelvin Wickham, said the lift was higher than expected, but WMP prices were leading the recovery because of low global inventories and firming demand.

Drought in India and parts of Asia, a slow start to the new season in New Zealand, and a drop in production in the USA might all have contributed.

With demand returning, customers had more confidence in re-filling their supply chains, "but it remains to be seen whether demand has returned to sustainable growth".

From the November 3 auction Fonterra will expand the products offered to include anhydrous milk fat (AMF) -- butteroil mostly bought in North America and Europe. "This will provide for AMF the same transparent market price," Mr Wickham said.

The next auction will be held on October 6.