The mid-point for the current 2020/21 season improved to $6.40/kg from $6.15/kg, based on strong demand from China.
Commenting on the 2020/21 forecast, chairman John Monaghan said after an initial shock due to Covid-19, dairy consumption in China was recovering with more people spending on food.
"We're seeing customers ramp up promotional activity as they look to catch up on the sales losses incurred over lockdown," he said in a statement.
"Elsewhere, the EU and US governments' support measures for farmers are holding up milk production and dairy commodity prices despite the disruption they have experienced so far from Covid-19.
"While we expect these support measures to end at some point, it is likely they will continue through the peak of the New Zealand season."
There was still a high level of uncertainty but the risks would lessen, supporting the decision to lift the bottom end of the price range, he said.
"It's very early in the new season and we are keeping a close eye on consumer demand and production from the key milk-producing regions."
Milk supply from the EU, US and Latin America was increasing despite the impact of Covid-19, and there continued to be uncertainty around how the global recession and the potential for a second wave of Covid-19 globally could impact on demand.
Fonterra said farmers should continue to budget with caution.
At the last Global Dairy Trade auction on July 8, strong demand for whole milk powder (WMP) drove the GDT price index up by 8.3 per cent - its biggest lift since November 2016 and the fourth consecutive gain.
WMP prices - which have the biggest bearing on Fonterra's farmgate milk price - leaped by 14 per cent to US$3208 a tonne and back to where they were in late January of this year.
After a sharp shift down to US57c in March the New Zealand dollar has recovered ground, trading today at US65.3.
