UPDATED 9.53am: Fonterra has increased its forecast farmgate milk price by 75 cents to $6 per kilogram of milk solids, citing increased demand as global production falls.

Fonterra has increased its forecast farmgate milk price by 75 cents to $6 per kilogram of milk solids, citing increased demand as global production falls.

When combined with the forecast earnings per share range for the 2017 financial year of 50 to 60 cents, the total payout to farmers in the current season should be $6.50 to $6.60 before retentions, Fonterra announced on Friday.

"We've seen falling production in the major exporting regions, particularly Europe and Australia, and an unprecedented decline in New Zealand milk supply due to wetter than normal spring conditions across most regions," said chairman John Wilson.

"We are very mindful that farm incomes will be affected this year because of lower milk production so we will be doing everything possible to build on our good start to the financial year and deliver the highest possible total payout to our farmers."

Farmers were paid out $3.90/kgMS last year.

Westpac's acting chief economist Michael Gordon said the hike in the forecast payout was not a surprise.

"Since its last update, prices in the fortnightly GlobalDairyTrade auctions (particularly for whole milk powder) have increased significantly. Tighter domestic supply, following very wet weather in the Waikato and other parts of the North Island, has been a key factor supporting prices," he said.

But he thought Fonterra's estimates of a 7 per cent drop in milk collections this season.was too pessimistic and kept its milk price forecast at $5.80/kgMS.

New Zealand's rural sector has been recovering from last year's slump in dairy prices which saw the 2016 payout below what dairy farmers need to break even, stretching their balance sheets for another season.

Fonterra also said its first quarter revenue of $3.8 billion was up six per cent on the same period last year.