29062015 News Photo: Mark Taylor Fairfax NZ . President for Federated Farmers Waikato Chris Lewis talks milk prices and fonterra, On hes farm in Pukeatua

Fonterra's milk price increase from $6.50 to $6.75 per kilogram of milk solids for 2017-18 will bring in an extra $500 million for the economy.

DairyNZ says the additional farmer income will increase forecasted milk earnings to a total of $12.5 billion for the season.

The increase is due to provide an injection of about $104.5m for the dairy powerhouse region of Waikato and $71.8m for North Canterbury.

Fonterra farmers are benefiting from better global dairy prices.

The co-operative also announced a forecast earnings per share range of 45 cents to 55c, making the forecast total available payout to farmers in the 2017-2018 season $7.20 to $7.30, before retentions.

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The rise on the back of last season's expected $6.15 was a heartening turnaround for farmers, who needed more than one good season for balance sheets to move into positive territory after low payouts in 2014-15 and 2015-16.

Federated Farmers dairy group chairman Chris Lewis said it was "fantastic news".

"I'm sure it will put a spring in the step of every farmer who comes in to their morning tea."

"Good on Fonterra, they are working hard to capture all the value they can. They have a good set-up with their plants with different products," Lewis said.

Other processors would have to look at revising their prices in the light of the rise. Open Country Dairy's forecast set in April was for a range of $6.25-6.55.

Lewis said processors making value add products and catering for the increased popularity of fats would be in a good position, whereas those producing whole milk powder only would struggle.

The 25 cent lift on the farmgate forecast for the 2017-18 season was welcomed by farmers experiencing wet conditions around the country, DairyNZ's senior economist Matthew Newman said.

"Farmers will use this extra income to pay down some of the additional debt they had to take on over the seasons of low pay outs. Then many will take the opportunity to put money back into their farms by way of carrying out required maintenance, and adding necessary infrastructure.

"I hasten to add, however, that while the forecast price increase is $6.75 per kg of milk solids, the estimated national break-even price of $5.45 will increase this season due to additional farm costs and higher tax payments."

Fonterra chairman John Wilson said the revised forecast reflected the rebalancing of supply and demand in global dairy markets.

"We are seeing growing confidence on-farm across the country and, with global demand for dairy strengthening, the signs are for a good start to the season for our farmers and their rural communities although following a challenging period of very wet conditions for some of our farmers," Wilson said.

Chief executive Theo Spierings said Fonterra was well positioned to take advantage of improving demand for dairy nutrition across its ingredients, consumer and food service markets.

"Our forecasts are prudent given that we are still early in the season and we are starting with very low levels of inventory, and we are focused on continuing to demonstrate strong business performance so as to bring greater returns for our farmers."

Milk futures broker Nigel Brunel of OMF Financial said the increase reflected current prices, and based on the futures market, there was even more room to move upwards.

"If you take a snapshot of commodity prices over the last 200 days, then the price could be close to $7.20."

The head wind was the strength of the New Zealand dollar, which was at 75c to the $US.

The forecasted payout for the completed 2016-17 season remains at $6.15 with earnings per share of 40c and has yet to be confirmed by Fonterra.