Wellington, April 11 NZPA - Fonterra today announced a 40c boost in its payout forecast for the 2007-2008 season, lifting it to a new record of $7.30/kg milksolids.

The price means that Fonterra farmers are likely to receive an average payment of more than $800,000 -- and that some farmers who own three or four farms will be multi-millionaires on the basis of this year's payout alone.

The 2006-2007 payout was $4.46/kg, and Fonterra's previous record payout, $5.33/kg in 2002, was worth $6.14/kg in 2007 dollars.

This season, the key issue will be the extent to which the drought has hit milk production - initially predicted by Fonterra to be on a par with last year's 1.25 billion kg of milksolids.

If last year's production can be matched, the cooperative's 10,711 farmer shareholders will each receive an average payment of more than $850,000, and the milk payments nationally will add up to a $9 billion cash injection for regional economies.

Fonterra has repeatedly declined to update its production forecast, but said today that during the past three months drought has cost its farmers 80 million kilograms of milksolids in "lost" production. This gels with analysis by agricultural economists that the 2007-08 drought will take $894 million from expected dairy earnings -- an average of $79,400 for each dairy farm -- but still leaving the "average" farmer with a healthy payout of around $770,000.

But the "white gold" payout may vary widely - some individual farmers will not get the full benefit from the high payout because the drought has constrained their herd's milk yields, or because they have had to pay high prices for supplementary feed to maintain milk production. The giant cooperative's chairman, Henry van der Heyden, said it was ironic that some of the record payout is due to international commodity prices being propped up by a drop in dairy exports from New Zealand due to the drought.

"Production has dropped in New Zealand, supply gaps have opened up and prices have risen," Mr van der Heyden said. "It's ironic that the dry conditions which are hitting many farmers so hard have driven up prices". "Many farmers will just be clawing back the dollars they have lost from reduced milk production and increased costs for feed, fuel, and fertiliser."

He said there was further potential "upside" for NZ dairy exports, but w arned farmers that Fonterra is looking at retentions -- holding some of their money back from the final payout.

"The instability in the global financial markets may mean the Fonterra board will consider retaining some of this season's payout," he said in a statement. "That decision will be taken at the end of the financial year".

Fonterra is changing its balance date from May 31 to July 31, and its final payout for the 2007-2008 season will be based on the cooperative's performance to the end of July, though it will be paid on milksolids supplied to the normal end of the season at May 31 2008.

Fonterra will announce its 2008-2009 payout forecast in May. Other commentators have predicted a fall to $6/kg next season, with the exchange rate and falls in commodity prices being key factors.

Fonterra chief executive, Andrew Ferrier, said the sharp drop in milk production since January had forced Fonterra to re-allocate product, although customer commitments have been met.

"In December, supply and demand were expected to be largely in balance and we were expecting prices to soften in the New Year, especially with Europe and the US forecast to increase supply. "With the US in the market, skim milkpowder prices came off, as we expected, but as our drought has worsened and production has fallen off sharply supply has tightened and prices have stabilised."

Whole milkpowder, cheese, and butter had all risen in price and helped offset a US5c rise in the NZ dollar exchange rate since Christmas. The December forecast of $6.90/kg was based on a spot rate of US76c, while the current forecast spot rate is now US81c.

The $7.30 forecast includes a small increase in the added-value component -- up 2c to 22c -- from branded consumer goods and specialty ingredients, but this was mainly a a reflection of the extra two months in the company's financial year. Branded goods and high-end specialty ingredients had performed well but the high international commodities prices were squeezing margins for the mainstream ingredients business.

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