Fonterra plant NZ© Chameleons Eye/Rex/Shutterstock

New Zealand mega co-op Fonterra has increased its forecast for the price it will pay farmer members by the equivalent of 2.1p to 20.1p/litre.

Forecasted share earnings for the 2017 financial year will raise the projected 2016-17 farmgate price further to 22.1p/litre.

The move by the dairy giant is the latest in a line of indicators pointing towards a worldwide dairy market recovery. 

The payout of New Zealand $4.75/kg of milk solids is a 50-cent increase on bleaker projections from the previous quarter.

See also: Global Dairy Trade price index sees huge jump

The increase follows a huge price jump on GlobalDairyTrade (GDT) of 12.7% on 16 August and global milk production falling, 7% in the UK and 4% in New Zealand compared with the same time last year.

“We still expect the dairy market to be volatile over the coming months,” said Fonterra chairman John Wilson.

“Current milk prices will remain at unrealistically low levels, but have started to improve as global demand and supply continue to rebalance.”

Fonterra is required to update farmgate prices every quarter, with the next update due in November.