Fonterra today lifted its payout forecast for the 2008/09 season by 10 cents to NZ$5.20 in an unscheduled announcement. The increase in the payout forecast will mean farmers will get an extra 10 cents per kilogram of milk solids (kgMS) in their advance payments from June, up to NZ$4.15/kgMS, Fonterra said.

The advance payments are monthly payments from Fonterra to farmers throughout the year and are made up to the final payout at the end of October. The monthly advance rate rises progressively through the season.

At the revised payout forecast of NZ$5.20, advance payments would rise to NZ$4.75 by October, plus a 45 cent value return component made in the final payout. The remainder of the payout figure is paid retrospectively for each month, based on farmers' milk solids production.

Fonterra chairman Henry van der Hayden said that the Fonterra board was conscious of farmers' cash flows and wanted to make the announcement as soon as possible.

Fonterra usually only makes unscheduled announcements on payout forecast revisions when the forecast moves by more than 30 cents. The next scheduled payout review is in May, which is also when the company will announce its initial payout forecast for the 2009/10 season.

"(T)he move reflected the Board's desire to do what it could to assist farmer-shareholders during a very difficult year of sharply lower commodity prices," van der Heyden said.

"Although international dairy markets remain uncertain and volatile, some encouraging signs of more stability have been emerging in recent months," he said.

"Powder prices on our globalDairyTrade platform have increased and our global sales team has made good progress in selling product at these improved prices. As a result, we now have the cautious optimism necessary to signal a modest but welcome increase in payout."

However, van der Hayden said that if the eventual payout were to be higher than NZ$5.20, farmers should expect some level of retentions by the dairy co-operative.

"We need to tread a fine line between maximising payout to our farmers and strengthening the Co-op's balance sheet in these uncertain and challenging financial times. We have decided to put an extra 10 cents per kgMS in the pockets of farmers as soon as we can, while at the same time noting that retentions will be considered if the eventual payout is higher," he said.