Northland dairy farmers will earn an extra $36 million after an increase in the forecast milk price by 40 cents per kilogram of milksolids was announced by Fonterra.
The dairy giant raised the mid-point of its farmgate milk price from $6.40/kgMS to $6.80, largely driven by improved demand for milk in China.
If the final payout for the 2020/21 season stays at $6.80/kgMS, Northland dairy farmers will earn $612m based on about 90 million cu metres of milk solids they supply to Fonterra each year.
Fonterra chief executive Miles Hurrell said, despite the initial impact of Covid, demand for whole milk powder in particular had been stronger than expected.
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While it was still early in the season, he said dairy prices had improved from the levels seen on the Global Dairy Trade (GDT) through the first wave of Covid and demand for milk powders had proved resilient.
"We have seen this demand reflected in GDT auctions, with prices trending upwards in recent events and this is supporting our decision to lift the range and its mid-point, which farmers are paid off."
Hurrell said one of Fonterra's priorities was to have a competitive milk price, as this not only supported its farmers, but local communities as well.
At a $6.80 milk price, more than $10 billion would flow into regional New Zealand.
He said there were a number of factors Fonterra was keeping a close eye on, which was why it was retaining a wide forecast range of between $6.30 and $7.30/kgMS.
"It is still relatively early in the season and a lot can change. For example, we could experience volatility with exchange rates, milk supply from the EU and US is increasing and there continues to be uncertainty around how a potential risk from further waves of Covid-19 and a global economic slowdown could impact demand.
"With increasing demand and supply, we see the dairy outlook as more balanced, but given there are still a number of risks, we are still recommending our farmers be cautious with their decision making," he said.