Ample milk supplies will limit upturn as milk production rises in key regions.

Although still below highs for the year and well below year-ago levels, prices for benchmark nonfat dry milk have increased about 20% from mid-August lows and in some cases have risen five consecutive weeks, enough to indicate prices may have bottomed after declining for more than a year. But don’t expect runaway prices any time soon as ample milk supplies still overhang the market.

Nonfat dry milk is the highest-volume produced dry dairy product, and typically where excess milk supplies are channeled for processing. That was the case through the summer as N.D.M. production and stocks increased and prices declined to 6-year lows domestically and 13-year lows in some international markets, as was discussed in this column in July. Prices fell a bit more from that point, but have shown consistent strength since mid-August as domestic milk supplies declined seasonally (though still rising year-over-year), more fluid milk was channeled to reopening schools and international markets took an upturn.

Globally, New Zealand, the world’s largest dairy exporter, and China, a key dairy importer and consumer, tend to set the tone for the market, which ultimately affects U.S. dairy product prices because exports also are key for the United States. AgriMoney reported that prices at last week’s Global Dairy Trade auction, run by New Zealand’s dairy firm Fonterra, were up 16.5% from the prior auction two weeks earlier, up 48% from 13-year lows in July and the highest since early April.

New Zealand’s producers are being squeezed by low milk prices and a lack of feed due to dry conditions from the effects of El Niño, AgriMoney said.

“Milk powder prices have been recovering since Fonterra announced it was cutting the amount of product it was making available on the Global Dairy Trade platform,” AgriMoney said. Analysts said new demand was sparked by low prices and the seasonal return of China to the market despite its economic woes.

But Rabobank dairy analyst Thomas Bailey, quoted by AgriMoney, warned it was “unlikely that we’re going to see a bull blown growth in dairy commodity prices.” Even though milk production in New Zealand and Australia is expected to decline next season, outturn in Europe and the United States continues to rise.

“The milk production forecast for 2015 is raised (from August) on a larger expected cow herd and slightly more rapid growth in milk per cow,” the U.S. Department of Agriculture said in its September World Agricultural Supply and Demand Estimates report.

Profit margins for U.S. milk producers have narrowed but remain mostly positive as lower feed prices have offset much of the impact from declining milk prices. U.S. milk production through July was up 1.6% from 2014 and would be up even more if not held in check by lower output in top-producing California largely as the result of ongoing drought there.

The U.S.D.A. forecast 2015 milk production at 208.9 billion lbs in its September WASDE, up 100 million lbs from its August forecast and up 1.4% from 206 billion lbs in 2014. Milk production in 2016 was forecast at 213 billion lbs, up 2% from this year, which is ultimately expected to limit the upward price potential for most dairy products in 2016.

“Nonfat dry milk prices are forecast higher (from August) in 2015 reflecting the recent rebound in prices, but the forecast is unchanged (from August) for 2016 (but higher than 2015),” the U.S.D.A. said.

The U.S.D.A. raised from August its class 4 milk (used for butter and dry products) price forecast for both 2015 and 2016 in its September WASDE. The strength in class 4 milk mainly is related to ongoing strong butter demand, which has kept price declines much smaller than for dry products.

It should be noted that prices for some dry milk products, including whey, lactose and whey protein concentrate continue to decline or hover near multi-year lows. Since N.D.M. typically sets the tone, the test for recovery in dry milk product prices will be when and if other products follow N.D.M. higher. Prices for dry buttermilk, a relatively small volume product but key to baking, ice cream and certain other applications, already has moved higher with N.D.M.