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Fonterra is expecting milk volumes to grow 7.5% to 1.573 million kg ms this season.
The co-operative has lifted its previous forecast of 6.4%, given in December, with dry conditions not as widespread as last season and a record forecast farm gate milk price also tipped to have a positive influence on supply.
Milk collection across New Zealand for the nine months to February 28 reached 1.272 million kg ms, 4.9% higher than the same period last season, Fonterra's latest global dairy update said.
Some regions of the North Island continued to experience dry conditions, with western regions receiving less rainfall than the east.
The South Island had received more consistent rainfall than the North Island and was contributing to strong production levels for the season to date.
Milk collection for February in the North Island was 12.9% higher, while the South Island was up 7.5%.
Last month, Fonterra hiked its forecast farm-gate milk price to a record $8.65kg ms, with the 35c increase equating to an increase in dairy incomes of about $600 million.
It means a forecast cash payout to farmers of $8.75 for the 2013-14 season, added to the previously announced estimated dividend of 10c a share.
The increase reflected continued strong demand for milk powders globally, particularly driven by a supply and demand imbalance in China.
Meanwhile, construction of Yutian 3, the final farm in Fonterra's first dairy farming hub in China's Hebei province, has been completed.
The farm, twice the size of the previous farm builds, is now milking more than 6000 cows.
The hub, near Beijing, has five operational dairy farms milking a total of about 15,000 cows, producing 150 million litres a year.
Fonterra's first China farm opened in 2007 at Hangu, east of Beijing, aiming to produce up to one billion litres of milk from 30 farms by 2020.