The dairy co-operative now expects to pay $7.30-$7.90 a kilogram of milksolids, up from a prior forecast of $6.90-$7.50.
The midpoint of the range, which farmers are paid off, has increased to $7.60 a kg MS and the lift means Fonterra will now pump more than $11.5 billion into the economy through milk payments.
Chief executive Miles Hurrell says the increase is due to consistent strong demand for NZ dairy.
“It’s very much a China demand-led story, but there is also good demand for New Zealand dairy across Southeast Asia and the Middle East,” Hurrell said.
He says customers know Fonterra are continuing to get products to market, despite the challenges in the global supply chain.
“They are looking to us for this reliability,” he said.
Hurrell says customers are also buying more product than usual to help mitigate the risk of global supply chain delays.
He said, however, it is important farmers recognise there are a number of downside risks to the midpoint of the range.
For example, the European Union and US are heading into their season and their milk supply will start increasing, and he pointed to the impacts of covid-19 on key markets and market volatility.
Not only that, but “a $7.60 a kgMS forecast farmgate milk price also increases our input costs putting further pressure on our earnings in the second half of the 2020/21 financial year,” he said.
Hurrell said more details on earnings would be provided at the half-year result on March 17.
