"The demand signals we saw at the end of full-year 2022 (to July 31) have continued driving improved prices and higher margins across our portfolio of non-reference products, particularly in cheese and our protein products such as casein," he said.
"We see strong underlying demand and the latest lift in whole milk powder prices on Global Dairy Trade is also a positive signal reversing the recent easing in the prices that drive our farmgate milk price," he said.
"Strong offshore prices for protein, as reflected in the recent increase in EU and US milk prices, mean our protein portfolio has been performing very well," he said.
Fonterra began a three-year "strategic re-set" which involved asset sales, debt reduction, and focusing on its New Zealand production, in 2019.
Westpac senior agri economist Nathan Penny said the upgrade was a step in the right direction for the co-op.
"It's a positive lift after what has been an extended lean period for Fonterra," Penny said.
"It's an indication that Fonterra is moving in the right direction after steadying the ship over the last few years," he said.
"They have been below par in terms of what they have been returning and this is a step towards getting back to what you would consider as par.
"But given Fonterra's size and the amount of cash that will put into farmers' incomes, it's always material," Penny said.
Hurrell said the sustained period of favourable pricing relativities between our protein and cheese portfolios and whole milk powder was the main driver for the increase in the 2023 earnings guidance range.
"If these unprecedented conditions were to continue for a further extended period, this could have an additional positive impact on forecast earnings," Hurrell said.
He said the co-op had recently seen a reduction in milk collections with weather conditions experienced in some parts of New Zealand causing a slow start to the season, most recently the floods in the Far North and top part of the South Island.
Fonterra last month revised down its 2022/23 forecast Farmgate milk price range from $8.75-$10.25 per kg to $8.50-$10.00 per kg, reducing the midpoint from $9.50 to $9.25.
Fonterra will release its financial results for the year on September 22.
The co-op's NZX-listed units last traded at $3.11, up 11c from Thursday's close.