Fonterra up to $5.20- Worth $120 million more

South Canterbury dairy farmers are smiling after Fonterra's announcement of a 10 cent increase in its milk solid forecast payout for 2008-09 writes The Timaru Herald. The increase from $5.10 to $5.20/kg milk solids means an extra $20,000 for Waimate dairy farmer John Gregan. "That's very welcomed." Mr Gregan, who milks 500 cows that produce 200,000kg, said farmers would be pleased and it was a positive sign that perhaps the price had bottomed out. "I'm relatively small and the average dairy farmer in South Canterbury milks 700 cows, so most of them are more likely to do 300,000kg milk solids and that will be a $30,000 increase and that will be welcomed. "I suspect farmers won't be spending it, they'll be putting it towards debt because we've got uncertain times and everything's been so volatile. Most farmers will be putting it in the bank. It's an encouraging sign that things are heading in the right direction." . The announcement would thrill most dairy farmers because many felt the forecast was unlikely to move above $5.10/kg, he said. The news surprised dairy farmer Bryan Beeston because he thought Fonterra would keep the forecast at $5.10/kg and use any extra cash to improve the co-operative's debt-to-equity level. "All the information we had was that they would be struggling to do $5.10/kg and anything above $5.10/kg, they would be keeping to improve their own debt to equity level." The extra cash will be used to clear debt. Mr Beeston has three dairy herds totalling 2200 cows on 700 hectares at Peel Forest and near the Rangitata River. "We had expected to lose money this year and now the loss will be less than it was going to be. All it's going to do is minimise the loss we were going to get." Fonterra chairman Henry van der Heyden said the increase reflected the desire to do what it could to assist farmers during a difficult year of sharply lower commodity prices. "Although international dairy markets remain uncertain and volatile, some encouraging signs of more stability have been emerging in recent months. Powder prices on our global DairyTrade 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."Farmers should expect some level of retentions if the amount available for payout exceeds $5.20/kg, Mr van der Heyden said. "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 10c/kg milk solids 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."