A rise in the forecast farmgate milk price will rake in $427.5 million for Northland dairy farmers this season - $45 million more than predicted earlier this month.

Fonterra yesterday increased its 2016/17 forecast farmgate milk price by 50 cents to $4.75 per kg of milksolids.

When combined with the forecast earnings per share range for the 2017 financial year of 50 to 60 cents, the total payout available to farmers this season is forecast to be between $5.25 and $5.35 before retentions.

A payout of $4.75 would earn Northland dairy farmers $427.5 million based on the roughly 90 million kg of milk solids produced in the region.


Earlier this month, Fonterra announced a forecast price of $4.25, making the total payout available to farmers in the 2016/17 season $4.75 to $4.85.

A payout of $4.25 would bring in $382.5 million to Northland's economy.

Despite the latest lift in the farmgate milk price forecast giving Northland dairy farmers some breathing space, they are still cautious about the long term viability of the payout remaining above $5 per kilogram of milksolids.

"The latest forecast price gives everybody some breathing room and means farmers will start doing some farm work rather than worrying about cutting costs," Federated Farmers' Northland dairy chairman Ashley Cullen said.

"There are very smart operators out there that are making a profit from what we've been getting because they've set themselves up well to be able to ride the rollercoaster but the vast majority of dairy farmers don't have that ability."

Mr Cullen said the bulk of the increased payout would be used to pay off debts incurred in the past two years.

He said a payout of between $5.50 and $6 should enable most dairy farmers to make a profit.

"There's still a lot of caution to be had out there," he said.

Following the announcement, Fonterra said current global milk prices remained unrealistically low but would improve as global demand and supply continued to rebalance.

"Milk production is reducing in most dairying regions globally in response to low milk prices and this is bringing the world's milk supply and demand back into balance," Fonterra chairman John Wilson said.

"Milk production in the EU is now in decline and our New Zealand milk collection at this early stage is around 4 per cent lower for the year to date.

Prices have increased on GlobalDairyTrade but the increasing NZD/USD exchange rate continues to offset some of these gains.

"We expect the dairy market to be volatile over the coming months and will continue to keep our forecast updated."