Fonterra trumpeted its "increasing confidence" in the global dairy market revival as it hiked by nearly 19% its estimate of the returns it will pay its 10,500 members.

The New Zealand dairy giant, in a second raise to its 2009-10 payout forecast, lifted the estimate by NZ$0.95 to NZ$6.05 per kilogramme of milk solids.

While farmers had expected a further revision, following continuing price rises at Fonterra's monthly auction, they had not expected an upgrade on this scale.

"Farmers will be both pleased and surprised at the significance of the increase," Blue Read, chairman of Fonterra's shareholder council, said.

"Receiving this news should help restore farmers' confidence that the food industry is one of the best to be in, especially during depressed global economic times."

'In good heart'

Sir Henry van der Heyden, the Fonterra chairman said the improved estimate reflected the co-operative's "increasing confidence around the recent gains in international dairy prices".

The group restated an observation last week of "tight" supplies of many dairy products.

However, Sir Henry urged caution over the potential for rising dairy prices to prompt farmers worldwide to raise output.

"We saw this happen in 2007 and we saw how quickly the market can fall as a result."

Cheese flags 

Fonterra's price rise comprised a NZ$1.10 increase to $5.70 per kilogramme of milk solids in the payout from milk production, offset in part by a NZ$0.15 decline to $0.35 per kilogramme of milk solids in the return from dairy processing operations, which have been dented by the higher raw material costs.

"Although prices for all dairy products are now increasing, the recovery has been strongest across the range of commodity milk powder streams," Fonterra chief executive Andrew Ferrier said.

"Prices for non-powder products such as cheese and casein have not risen at the same rate as powder prices."