Wellington, Sept 23 NZPA - Fonterra, the nation's biggest exporter, says it expects international commodity prices to rise but warned today that farmers are still facing volatile markets.

Fonterra predicted a "slow, gradual rise" for international dairy prices, but said not all dairy prices would necessarily rise to the same extent as cheese and milkpowder.

The price of whole milkpowder traded at Fonterra's online auction has increased by over 52 percent since July.

"Though we do think that over the long term commodity prices are moving up, we are currently cautious," said chief executive Andrew Ferrier.

Chairman Sir Henry van der Heyden said the current production year had started with a cold, wet June, and it was probably going to depend on the weather what happened over the rest of the season.

"The expectation is that we'll probably end up very similar to where we were last year," he said told an Auckland media briefing on the company's 2009 result and its outlook for 2010.

The company's release of its 2008-2009 financial results today followed hard on the heels of yesterday's announcement of a 12 percent rise in the projected payout for the current season, from $4.55 to $5.10/kg.

This was equivalent to a jump from a gross income of $559,000 to $639,000 for the average Fonterra farmer producing 123,000kg of milksolids.

Fonterra's domestic milk production in the 2008-2009 season expanded 7 percent to 1.281 billion kg of milksolids and it today confirmed that season's payout at $5.20/kg.

Directors have retained a further 1c/kg -- more than $12m -- available for payout to help balance their books.

While the $5.20 milk payout was well down on the record $7.90 the previous year, Mr Ferrier said the cooperative had boosted its distributable profit to $603 million over 12 months to July 2009, compared with $364m in the preceding 14 months.

With milk payments and this dividend combined, nearly $6.4 billion had been allocated to farmers.,

At the same time as boosting the money available to farmers, it had strengthened its balance sheet.

Fonterra said its total revenue was $16.035 billion for the 12 months to July 31, down 17.8 percent from $19.512m for the 14 months to July 2008.

Mr Ferrier said stockpiled inventory had left the company better able make sales in a recovering market during the second half of the year, with New Zealand-sourced sales volumes for the year growing 5 percent.

As a result, total inventories were reduced to $2.7 billion by year end, $600m lower than a year earlier.