A milk pay-out of $6.15 a kilogram of milk solids this season will give farmers an extra $3.5 billion compared to last season, says Fonterra.
The co-operative has lifted its pay-out for the season by 15 cents and announced an opening forecast for next season of $6.50 kg/ms.
Milk prices have come a long way from last season's pay-out of $3.90, and the dairy index is now at its highest in about three years.
Fonterra chair John Wilson said the global market was still volatile, but supply and demand were now in better balance.
He said a total pay-out of $6.55 kg/ms, which included a 40 cent dividend, would go a long way in helping farmers pay off debt.
"This year relative to last year there will be around about another $3.5bn flowing into our farmers and into the rural communities.
"Farmers will be using that to continue to strengthen their own working capital positions and their own balance sheets after a challenging couple of years."
Mr Wilson said stronger production in March and April had partly offset lower peak milk production and collections were now expected to be down 3 percent for the season, which was a "much better outcome" for farmers.
Forecast 'steadies the ship'
Waikato dairy farmer Chris Falconer, an owner-operator, said the forecast for next season was all good news.
"For most farmers we've had two steps back and one step forward this last year so a $6.50 kg/ms puts us back above the average milk price.
"That enables everyone to consolidate, steady the ship and get back on course to wherever it may have been they were headed prior to the milk price decline."
He said the forecast was in line with how stable the Global Dairy Trade auction had been this year, and when Fonterra sat on its $6 kg/ms forecast this year, it was a good sign.
"It tells me that there are some fundamentals sitting in the background that support the $6, and given the extra 15 cents it tells me things are tracking in that direction rather than the other [downward] direction."
It gave farmers confidence to see Fonterra announcing a set figure for the forecast instead of a price range, said Mr Falconer.