KEY POINTS:
Soaring overseas prices will give Fonterra's 11,600 dairy farmers a big pay increase this year.
Fonterra's 11,600 farmers are likely to get a payout boost averaging $250,000 each this season, double the rise forecast by Fonterra seven weeks ago, says a bank economist.
That would take the average milk payment to more than $720,000 for each dairy farmer.
Westpac economist Doug Steel said international dairy prices had risen by a further 15 per cent since Fonterra's May forecast of a record payout of $5.53 a kilogram of milk solids.
That forecast was a lift of 27 per cent on last season and would have given farmers an extra $1.5 billion in a payout of nearly $7 billion.
The latest indications are that international commodity prices have soared to levels that will enable a payout of about $6.60/kg.
The average farm is expected to produce about 108,000kg, and some big farms produce four times as much.
Mr Steel said the extra flow of money into regional economies would make it harder for the Reserve Bank to to control inflation.
The Reserve Bank will review interest rates next week, and financial markets expect another increase in the official cash rate - now at 8 per cent after three increases this year.
This week, Westpac markets economist Sharon McCaw said dairying was producing "white gold" for New Zealand's economy.
She said dairy prices had increased 2 per cent a week over the past six weeks, and had doubled in a year.
Farmers will probably have to wait until September to see if Westpac's prediction of further payout increases is accurate.
The president of Federated Farmers, Himatangi dairy farmer Charlie Pedersen, is worried that the dairy industry could become a scapegoat for any further interest rate rises.
He says farmers do not have the money in their hands and will not for at least another 18 months.
Pedersen said the big payout would go some way to redressing the tough times dairy farmers have had to endure.
- NZPA
