Fonterra is raising its forecast farmgate milk price for the current dairy season, driven by improved demand in China.
The mid point in the forecast price range is $6.80 per kilogram of milk solids, up from $6.40. The margin on either side is plus or minus 50 cents.
Fonterra chief executive Miles Hurrell said despite the initial impact of Covid-19, the co-op had seen demand for dairy in China recover quickly. In particular, demand for whole milk powder, which is a big driver of milk price, had been stronger than expected.
"While it is still early in the season, dairy prices have improved from the levels we saw on GDT (Global Dairy Trade) through the first wave of Covid-19 and demand for milk powders has 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.
But Hurrell noted it was still early in the season and a lot could change.
For example, Fonterra could experience volatility with exchange rates, milk supply from the EU and US was increasing and there continued to be uncertainty around how a potential risk from further waves of Covid-19 and a global economic slowdown could impact demand, he said.
"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."
In September, Fonterra announced its final milk price for the 2019/20 season. It paid farmers $7.14 per kilo of milk solids, with an added five cents a share dividend.