Fonterra has raised its forecast farmgate milk price for the current dairy season for the second time in as many months.
The dairy giant now expects to pay farmers between $7.30 and $7.90 per kilogram of milk solids, which is a 40 cent increase on the previous guidance it issued in February.
The midpoint of $7.60 would be the second highest payout to farmers in the co-operative's history.
Fonterra chief executive Miles Hurrell said the revised payout is the result of global dairy trade prices increasing by 15 percent in the past week.
He said there had been strong, consistent demand for New Zealand dairy products from China, and to a lesser extent markets across South East Asia and the Middle East.
"China's strong economic recovery, following the initial impact of COVID-19, is flowing through to strong demand for dairy and we've seen this through sales during the Chinese New Year.
"China's local milk supply is being used in fresh dairy products and they are looking to us to provide longer-life dairy products - in particular, whole milk powder which has a big influence on the forecast farmgate milk price.
However, there were still risks that could the final payout towards the lower end of the range.
"For example, the EU and US are heading into their season and their milk supply will start increasing, the impacts of Covid-19 on key markets and market volatility."
Hurrell said the current midpoint would put pressure on the co-operatives input costs, which would affect its earnings in the second half of the financial year.