Dairy leader Lachlan McKenzie says farmers are likely to use any extra cash they have from last season's payout to reduce their debt.
Fonterra has confirmed its second highest payout of .$670 per kg of milk solids for the 2009/10 season.
After retentions, this is $6.37 cash in the hand for farmers, $1.20 more than the previous year.
Mr McKenzie, who is also a Fonterra supplier, says it is very good news, and a welcome relief for dairy farmers who have had a tough year with drought and stormy weather conditions.
But while it is the second highest payout ever, he says cost structures have significantly risen over the past few years.
"The focus is on reducing debt and shoring-up the on-farm business," he said. "With the credit squeeze, farmers are looking to ensure liquidity in their business."
Auckland farmer John Sexton says a lot of farmers will repaying large feed bills incurred during up to three consecutive years of droughts.
He is pleased that Fonterra is leaving its forecast payout for this season at between $7 - $7.10 per kg of milk solids.