11 Dec 2012

Fonterra's payout lift indicates confidence - analyst

8:34 am on 11 December 2012

An economist says Fonterra appears confident about higher dairy prices for the rest of the season after lifting its forecast payout to its farmer owners by 4% on Monday.

The dairy processor and exporter increased its forecast to $5.90 and $6.00 per kilogram of milk solids for the current season. The forecast payment is made up of a milk price of $5.50 - a 25 cent increase - and an unchanged dividend of between 40 and 50 cents.

That is close to its initial forecast it made in May.

BNZ economist Doug Steel says the improvement recognises the recent increases in global dairy auction prices.

He says Fonterra is suggesting that prices are going to continue to go up in the first half of next year.

Mr Steel estimates it will add about $400 million to the economy, though it's still a decline of about 9% compared with last season's $6.40 a kilogram payout.

Meanwhile, the success of Trading Among Farmers in strengthening its financial position has prompted Fonterra to lift advance rate payments to its farmers in January.

Mr Steel says the rural sector should welcome the extra money into dairy farmers' bank accounts.