New Zealand dairy giant Fonterra has increased the forecast of what it expects to pay its farmer-shareholders for the current season.

The company said it now expects to pay NZ$6.90-7.10 (US$4.70-4.84) for each kilogram of milk solids backed by a Fonterra share.

This means the dairy co-operative’s forecast has increased by 50% to NZ$6.60 per kg of milk solid.

Fonterra chairman Sir Henry van der Heyden said if international dairy prices and foreign exchange rates were to hold to current levels for most of the coming year, then it is possible that the 2010/11 payout could be well over NZ$8.00.

However, the forecast payout has been set at $6.90-7.10 reflecting a more cautious outlook given the high degree of volatility in the market.

“That’s what the market looks like right now, but we know that there is substantial volatility in the market. The reality is that we are seeing big swings in foreign currencies and turmoil in some economies. These factors could have a big impact on demand for dairy products and the prices we ultimately realise,” Heyden said.

“If prices hold up throughout next season, we could be looking at a significant improvement during the course of the year. But at this stage, in the current volatile environment, it would not be sensible to count on this,” he added.

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