Fonterra has announced an opening forecast for the 2011 season of up to $7.10 per kilogram of milksolids, broadly hinting the final payout "could be well above $8", which would be a payout record.
At $7.10, it would boost the overall payout, compared to the 2009-10 season of $6.60, by $970 million to $10 billion.
On average, Fonterra's 11,100 farmers would receive a $94,000 boost on last year's payout to book an average income of $908,000 per farm, before Fonterra's cash retention was taken into consideration, Westpac has calculated.
However, Westpac and Federated Farmers have cautioned any move to an $8 payout is highly reliant on the outcome of the present European sovereign debt crisis, future Asian demand and foreign exchange rates.
Fonterra's opening forecast payout, before dividend retentions, for the 2010-11 season was in a range of $6.90-$7.10, combined from the forecast milk price of $6.60 per kilogram of milksolids and forecast distributable profit of 30c-50c per share.
Fonterra's largest payout during the past nine years was $7.66 per kilogram in 2007-08.
Fonterra chairman Sir Henry van der Heyden said yesterday if international dairy prices and foreign exchange rates held to current levels for most of the year ahead, "it was possible that the 2010-11 payout could be well over $8".
However, he cautioned that "given the high degree of volatility in the market, the forecast was set in the $6.90-$7.10 range, to reflect "a more cautious outlook".
He said Fonterra intended its retentions from the distributable profit to be in a 25%-35% range, in line with dividend policy.
This meant Fonterra farmer shareholders would, on average, receive a total payout, after retentions, of $6.30 to $6.40 for each share backed by milk production, and a dividend of 20c-30c for each dry share they held.
Federated Farmers Otago dairy chairman David Wilson welcomed the "excellent result" of a payout up to $7.10.
He believed New Zealand was well positioned in the next 12 months to 18 months to contribute to annual global dairy growth of 1.5%, as the credit crisis would hinder overseas farmers from "gearing up" to meet the extra demand.
He said the payout boost should be used by southern dairy farmers to firstly pay debt and position themselves to later contribute to the annual global growth rate.
Both Mr Wilson and Westpac economist Donna Purdue noted the European debt crisis and New Zealand dollar strength against the US dollar played important roles on future payouts.
"There's no guarantee prices are going to continue. There's still a lot of volatility in the market and Europe is still fragile," Ms Purdue said, when contacted yesterday.
However, if the European crisis was resolved and Asian demand maintained there was no reason why the payout could not go higher than $7.10, she said.
In late April, Fonterra confirmed a 40c increase to $6.10 a kg of milksolids (after Fonterra's dividend retention) - the second highest from Fonterra at the time and up 17% on last year's $5.20 per kg.
The extra 40c was estimated to boost the economy by about $420 million, with the overall forecast for the season delivering about $9 billion.
