Fonterra has increased the value-added component for its forecast milk payout by five cents, in light of potential improvements in its ingredients business.
Fonterra on Friday slashed its forecast payout to farmers for the year to May 2009 by 60 cents to $6 a kilogram of milk solids. At the end of last season farmers were paid a record $7.66 a kilogram of milk solids.
But its Chief Executive Andrew Ferrier says the lower commodity price has improved the outlook for the value return payment, which is now forecast at 40 cents per kilogram of milk solids.
He says in terms of the ingredient side some of the business they were not able to do last year with very, very high commodity prices is now coming back, so forecasting a slight increase in profit in the ingredient side.
Mr Ferrier says despite the global economic uncertainty, the company is still optimistic about the future.
He says still remain positive about dairy pricing in the medium to long term.
Ministry of Agriculture and Forestry figures released last week predicted average dairy farmers' incomes would fall from $384,000 last year to $192,000 this year.
The predicted fall in income is greater than the drop of 20% in milk solid prices, because many business costs have remained high while incomes have fallen, cutting into net profits.
The ministry says its projections will probably change over the coming months.
