Fonterra Co-operative Group has increased its 2016/17 forecast Farmgate Milk Price by 15 cents to $6.15 per kgMS.

Chairman John Wilson says the increase announced on Wednesday reflects the strong fundamentals supporting global dairy markets, with world dairy prices rising in recent months.

'As we near the end of the season we have more visibility and certainty which makes us confident of our $6.15 position.”

Fonterra also confirms its forecast earnings per share range of 45-55 cents for the 2017 financial year, as it continues to target a dividend of 40 cents per share.

Some of the challenges Fonterra faced in the third quarter could continue, but the business is committed to a strong fourth quarter particularly in Ingredients sales, says John.

'This means we have been able to confirm the earnings per share range and full year target dividend.

'The higher forecast Farmgate Milk Price of $6.15 per kgMS and the target dividend of 40 cents per share gives a forecast cash payout of $6.55 for a 100 per cent shared-up farmer which is good news for our farmers and their communities.”

In a further signal of confidence in the market outlook for dairy, the co-operative is forecasting an improved Farmgate Milk Price of $6.50 per kgMS for the 2018 season. The forecast earnings range for the 2018 financial year will be announced around the beginning of August.

John says the increase in the forecast Milk Price for the current season and the improved forecast for 2017/18 will be welcome news for the co-op's farmers following two challenging seasons.

'Stronger production in March and April has partly offset lower peak milk production and collections are now expected to be down three per cent for the season, a much better outcome for our farmers than had been anticipated earlier in the year.”

Federated Farmers dairy industry chair Andrew Hoggard says Fonterra's favourable forecast wasn't unexpected and reflects the recent trend of increasing global dairy prices, which has fostered more confidence amongst the markets.

'Many dairy farmers throughout the country will be enjoying their lunch today. This is great news and comes after a turbulent few years where the industry has been under the pump.”

Based on Fonterra's forecast and current production cycles, around $280 million dollars is expected to flow through the New Zealand dairy sector and wider provincial communities this season.

And if you take on board the amount of milk Kiwi farmers are producing at present, this means the average dairy farm in the country will be around $23,000 dollars better off, explains Andrew.

'This will enable farmers to invest in their business and farm infrastructure, which has perhaps not been priority in the past two years in what has been a challenging time just trying to survive.

'We'll also have more money to continue investing in our environmental goals, which has been the focus for many farmers in spite of modest returns from their businesses.”

Andrew says Fonterra's predicted payout of about $6.50/kg MS for the 2018 season could also result in a potential injection of a further $650 million into provincial economies.

But he adds dairy farmers will be mindful of the recent downturn and the unstable nature of the markets where prices fluctuate at short notice.