New Zealand dairy giant Fonterra has increased the forecast of what it expects to pay its farmer-shareholders for the current season.

The company said it now expacts to pay NZ$1.10-5.70 (US$0.8-4.22) per kilogram of milksolids, while the distributable profit is 15 cents lower at 35 cents

This means the dairy co-operative's forecast has increased by 95 cents to $6.05 per kgMS.

The new forecast compares with an opening forecast of $4.55 per kgMS.

Fonterra chairman Sir Henry van der Heyden said that although the recovery in consumer demand and the global economic situation remain "relatively fragile", the higher forecast reflects the group's increasing confidence around the recent gains in international dairy prices.

"The improvement in global dairy markets reinforces that dairying is a business that's in good heart with sound long-term prospects, both for Fonterra shareholders and the broader New Zealand economy."

However, Sir Henry cautioned: "A big gain like this in the payout forecast, just shows how much volatility there is in the market."