'We've been hurting' says Fonterra boss

Fonterra will be keeping the forecast total payout at $4.55/kg for this season, it announced today.

Fonterra directors say a 10c/kg milksolids boost in added-value earnings has been wiped by a fall of 10c/kg in the commodity milkpowder price, so it is keeping the forecast total payout at $4.55/kg for this season.

The NZ dollar's exchange rate against the US dollar has strengthened significantly since the opening forecast for milk payout in the 2010 season was announced in May.

That initial payout assumed an exchange rate of around US59c.

But the NZ dollar overnight hit its highest level against the greenback in nearly 10 months, US66.33c, before dropping back to US65.90c.

Fonterra chairman Henry van der Heyden said the stronger kiwi was putting a downward pressure on the milk price: "We've been hurting, with the kiwi dollar up around US65c".

The cooperative has previously offered a rule of thumb of each US1c movement in the exchange rate affecting earnings to the equivalent of NZ10c/kg in the payout, with a stronger NZ dollar bringing lower payouts, in NZ dollar terms.

Mr van der Heyden said there were tentative signs of strengthening demand and firming prices for some products in international markets.

This had been taken into account in calculating a new forecast milk price - largely based on commodity milkpowders - of $4/kg instead of the initial estimate in May of $4.10.

"The fall in our milk price forecast would have been larger if we hadn't seen what are some early and encouraging signs in international markets," he said.

The cooperative's chief executive, Andrew Ferrier, said a 22 per cent lift in the other part of the payout-- the added value component based around fast-moving consumer goods and specialised ingredients - raise it from 45c to 55c.

Mr van der Heyden said the volatile NZ currency and continued uncertainty in international dairy markets had made forecasting difficult.

Cold and wet winter weather which has retarded pasture growth, and reduced farmer spending on their businesses because of tight cashflows, mean Fonterra has lowered its projections for milk supply in the current 2010 season.

The announced payout for the 2009 season of $5.20/kg remained on track and will be confirmed in September.

- NZPA