The payout at $6.10 is the second highest from Fonterra and up 17% on last year's $5.20 per kg.
The extra 40c announced yesterday is estimated to boost the economy by about $420 million, with the overall forecast for the season delivering about $9 billion.
However, for many farmers the gains will not materialise, as drought-stricken areas see a decline in production.
Otago's production is not expected to be overly hard-hit, as buying supplementary feed and an increase in cow numbers had underpinned production levels, which are expected to mirror last season's.
The increase was the first since the forecast milk price was raised by $1.10 in November.
Federated Farmers Otago dairy chairman David Wilson welcomed the increased payout yesterday, saying it would assist farmers who had paid for extra feed during the drought, and would help to buy forthcoming winter feed.
"Otago production during the drought has held up well.
Many got through the dry period with [purchasing] supplementary feed.
Otago is likely to be steady production, as last year . . . there were extra cows in Otago this season, which averages out [any production loss]," Mr Wilson said.
It is expected debt-laden farmers, and those who may have deferred some farm reinvestment, will welcome the increased payout to ease the financial strain, or underpin future production.
Lachlan McKenzie, Federated Farmers national dairy chairman said farmers would use extra payout to help get through "what has been a difficult season" and hoped the payout signalled the possibility of "similar levels" next year, to give more confidence to banks and allow credit to flow.
Drought-hit farmers elsewhere facing production downturns might see the cash downturn tempered in the short term and cashflows boosted, as Fonterra had revised the advance rate schedule for milk payments (the difference between forecast and actual payments) with progressive increases in payments during the next six months, Fonterra chairman Sir Henry van der Heyden said.
"This extra 40c a kg of milk solids will be welcomed by our farmer shareholders and also confirms that the 2009-10 season is shaping up as the second-best in terms of cash payments to Fonterra farmer shareholders," he said.
Sir Henry said the progressive increases in payments would "put more money in farmers' pockets sooner", assisting their cash flows while protecting the strength of Fonterra's balance sheet.
In late March Fonterra indicated a payout of about $6 per kg of milk solids, comprised of $5.70 for the milk price and a total dividend payment of between 20c and 30c.
A fortnight later, on Fonterra's monthly globalDairyTrade internet auction, average milk powder prices soared 23%, reversing three months of steady or falling prices.
Whole milk powder prices rose 21%, anhydrous milk fat 21.9% and skim milk powder gained 25.5%.
At the online auction earlier this month the average price for whole milk powder was $5670 ($US3969) a tonne, $982 higher than the previous month.
Prices ranged from $5364 to $6042.
The rise in the average price of anhydrous milk fat since the March sale was even higher, at $1240 a tonne, with an average price of $6895, while skim milk powder rose $1064, to an average $5245.
