The total payout to farmer for the current season is now expected to be somewhere in the region of $5.15.
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“Current global milk prices remain at unrealistically low levels, but have started to improve as global demand and supply continue to rebalance”, Chairman John Wilson said in a statement.
Fonterra’s announcement was not scheduled, “but it comes as no surprise given the extent of the improvement in world dairy prices in recent weeks”, said Michael Gordon, acting chief New Zealand economist at Westpac Banking Corp.in Auckland.
“We expect the dairy market to be volatile over the coming months and will continue to keep our forecast updated”.
“The latest forecast price gives everybody some breathing room and means farmers will start doing some farm work rather than worrying about cutting costs”, Federated Farmers’ Northland dairy chairman Ashley Cullen said.
The 2016/17 contract last traded at an average price of $5.10, while the 2017/18 average contract price was $5.60.
The Fonterra price upgrade represents a boon to its producers, who saw payments slump to NZ$3.90 per kilogramme of milk solids for 2015-16.
Lewis said it would take three good years for farmers’ finances to recover from the past two poor seasons.
Lewis said the pressure would now be on the dairy companies to perform in order to return more money to farmers.
Fonterra is required to forecast its Farmgate Milk Price every quarter under the Dairy Industry Restructuring Act (DIRA).
Futures market pricing has also been strong, but much will depend on how the market performs over the peak months of October, November and December.
Dairy NZ’s forecast’s for break even for farmers is just over $5.
The comments come the day after Murray Goulburn, Australia’s top milk processor, highlighted the pace of European Union milk output as “the key driver” for milk prices.
However, Oakes said that the new 20p a litre price is still unsustainable, and larger milk suppliers should do more to increase the price of their products.
Global dairy prices have been held back this year by a glut of supply, particularly from Europe.
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Fonterra reports its annual result on September 22.
