Fonterra has given dairy farmers some early Christmas cheer with a further 25c increase in its forecast average farmgate milk price.

This week the dairy co-operative lifted its forecast farmgate milk price to an effective midpoint payment of $7.50 per kilogram of milk solids (kgms).

The good news comes news comes after Fonterra slashed its average price to $6.75 in August, down from a May forecast of $8.00/kgms due to a flagging global market. In October, Fonterra upped that forecast by 50c to $7.25.

Mid Canterbury Federated Farmers dairy chair Nick Giera said it was definitely welcome news for local dairy farmers.

Forecasts for the season started around $8kgms and dropped to $6.75kgms which was "a loss making position" for most Mid Canterbury dairy farmers.

Giera said the latest average price was "a lot more comfortable" for dairy farmers and would help to ease the pressure farmer were under with high interest rates.

Fonterra had also announced an extra 5c a share on the back of improved margins in their operations. This would also lift payments to Fonterra members, he said.

Fonterra chief executive Miles Hurrell said the revised forecast reflected a recent strengthening in demand for reference commodity products from key importing regions, including China.

“Global dairy trade prices have lifted, and our sales book is also well contracted for this time of year, giving us confidence to increase our forecast farmgate milk price."

The dairy giant also reported strong earnings for the first quarter due to improved performance in all three of its sales channels.

“As a result, we have lifted the midpoint of our forecast earnings for the year up 5 cents per share, with the range moving from 45-60 cents per share to 50-65 cents per share.”

Hurrell said higher margins across the co-op's I\ingredients, foodservice and consumer channels had driven a lift in earnings, with gross margins to 21.4% from 15.5% this time last year.

Fonterra's profit after tax is up 85% on this time last year to $392 million, equivalent to 24c per share.

By Sharon Davis