South Island dairy products processor Synlait Milk has increased its forecast farmgate milk price by $1 to $6 per kilogram of milk solids for the 2016/2017 season, in line with Fonterra's updated forecast this month.

Synlait had planned to provide an updated forecast in February next year but chairman Graeme Milne said it was thought more appropriate to deliver one now for its 200 Canterbury milk suppliers.

"We've kept a close eye on the global dairy market and the trending increase in dairy prices can't be ignored," he said.

Reduced European production in the past three months show they're responding to lower milk prices and production is also reducing in New Zealand.


Milne said Synlait was also mindful that while China's demand for dairy products has risen recently, it's still unclear if and for how long that recovery will continue.

John Penno, Synlait managing director and chief executive, said the company remains cautious about the medium to long-term outlook.

Last week Fonterra Cooperative Group lifted its 2016/2017 farmgate milk price to $6/kg MS, a lift of $1.75/kg MS since the start of the season. The latest increase of 75 cents equates to a $1.3 billion lift in the value of this season's milk production. When combined with Fonterra's forecast earnings per share range for the 2017 financial year of 50 to 60 cents, the total payout for its suppliers is forecast to be $6.50 to $6.60 before retentions.

Fonterra also warned that its current milk collection forecast was down 7 percent on last season, which was constraining sales.

Dairy NZ said a $6 milk price brings farmers to above break-even levels, although chief executive Tim Mackle said the $5.05/kg MS break-even milk price would be revised up reflecting some additional farm working expenditure as well as tax payments. Many farmers had increased debt and deferred maintenance over the past two seasons, he said.