It raised the advance payment rate, payable in March, from $4.48 to $4.85, to reflect its confidence in world markets and the strength of the co-operative to deliver its $6 forecast.
Chairman John Wilson said the global dairy outlook remained positive with supply and demand relatively balanced.
“We expect global prices to continue to hold or gradually increase over the back half of this season – a view shared by most global analysts,” he said.
One of those dairy analysts, Susan Kilsby of AgriHQ, said falling commodity prices were putting downward pressure on the price farmers could expect to be paid this season, which ended on May 31.
The latest GDT results plus the response from NZX dairy and milk futures markets took 5c off the AgriHQ independent milk price forecast, which now sat at $6.33, she said.
“Some of the recent weakness in the market has been attributed to Fonterra's upward revision of its milk production forecast and making more product available for sale on GDT.
"We don't see the market sitting at the top of a slippery slope. Instead, we expect to see prices bouncing along for the rest of this season.
“Dairy prices will hit a few speed humps along the way but we don't expect to see any major fall in prices in the near term."
The AgriHQ milk price forecast was still well above the price forecast by most dairy companies though the fourth-largest, Synlait, recently increased by 25c to $6.25 and small co-operative Tatua had a forecast band of $6-$6.50.
Asked why Synlait was 25c ahead, Wilson said the financial year had five months to go and Fonterra farmers wanted the co-operative to make the best and prudent signal at this time.
“We have also focused on cash for farmers and I believe we are paying the biggest advance right now.”
ASB Bank rural economist Nathan Penny said the recovery in New Zealand milk production had the potential to depress world dairy prices so his own $6.50 forecast was now under review.
Westpac economist Sarah Drought said the fall of 3.7% in milk powder prices in the GDT auction brought them down to their lowest level since October but they were still 55% higher than mid-2016.
“Overall, dairy markets have found themselves in a much more balanced position this year, as last year’s retrenchment in global supply begins to taper off while demand has remained steady,” she said.
Fonterra’s revised milk production forecast of minus 5% indicated a NZ-wide fall of 3% for the season.
Westpac forecast a $6.20 payout.
