Fonterra raised its estimate for milk payouts to farmers for the second time in a month, citing "strong international prices", and extending the round of increases by processors.
The New Zealand-based group, the world's top dairy exporter, raised its estimate for milk payments to its 10,500 farmer suppliers in 2013-14 to NZ$7.80 ($6.10) per kilogramme of milk solids.
That upgrade, of NZ$0.30 per kilogramme of milk solids, represented the second in less than a month, a significantly higher payout than the NZ$5.80 per kilogramme of milk solids that farmers received in 2012-13.
And it reflected a better performance by dairy prices than had been expected, with prices at Fonterra's latest GlobalDairyTrade auction remaining close to record highs reached in April.
"Current market views support commodity prices remaining at historically high levels longer than previously forecasted," John Wilson, the Fonterra chairman, said.
"The two most recent GlobalDairyTrade events have seen prices hold, and significant volumes sold. These factors have contributed to our updated forecast."
The firmness in prices is seen as a reflection of a poor start to 2013 for production, thanks to dryness in Australia and New Zealand and cold springs in Europe and the US, at a time when demand is being underpinned by brighter economic prospects.
Latest southern hemisphere production data show a 7% decline year on year in milk output in New Zealand in June, while Australian output fell 3.5% in July, although these are for months which represent low points in the annual output cycle.
Meanwhile, a revival in grain prices is questioning hopes of a fall in milk farmers' production costs, whose elevated level has also deterred output expansion.
Round of price rises
Indeed, many other processors too have been raising milk price forecasts, with Australia's Devondale-Murray Goulburn earlier this month announcing its second uplift to its estimate for milk payouts, to Aus$5.95-6.20 per kilogramme of milk solids.
"Since increasing our opening price in late June, we have seen the international dairy market for key ingredients remain strong, and the outlook for the Australian dollar remain relatively weak compared to last year," Murray Goulburn managing director Gary Helou said at the time.
Among smaller Australian producers, Warrnambool Cheese and Butter on Tuesday increased the price it pays farmers for milk, raising its end of year forecast to AUs$6.00-6.20 per kilogramme of milk solids.
In the northern hemisphere, Arla Foods last week raised its milk price for UK farmers by 0.77p to 32.31p per litre.
Fonterra's price upgrade comes as the co-operative is still battling to quell the furore over the discovery in some of its whey products of bacteria which can cause botulism.
Bangladesh customs authorities were on Tuesday revealed to have restricted the import of more than 600 tonnes of powdered milk, mainly Fonterra product, ahead of chemical tests.