KEY POINTS:
Fonterra said today unprecedented global dairy market prices during the past month allowed it to increase its forecast payout for the current season by 20 cents to $4.35/kg of milk solids.
Chairman Henry van der Heyden predicted next season's payout would be more than $5, if current prices held.
He said there was strong demand that Fonterra has been well placed to meet with good milk flows through the latter part of the season.
"As we secure contracts at new record prices we are able to pass on the gains to farmers," he said.
"Prices are hitting record highs, but this 20 cent increase is still an excellent achievement, given the coinciding record high exchange rates."
Good prices would continue into the next season, Mr van der Heyden predicted.
"Our early indications for 2007/08 were that the payout would be closer to $5 than $4.
"We're now confident that if current exchange rates hold, next season's payout will have a $5 in front of it.
"However the downside of the high commodity prices is that our value add businesses will face a tough year next season.
"In the current season the high prices have only impacted on a small proportion of the year.
"Next year they are likely to impact on the whole 12 months and this will mean our value add component of payout (essentially profit) will be down in 2007/08," Mr van der Heyden said.
Fonterra will announce its forecast for the 2007/08 payout on May 23 when it will also confirm the Fair Value Share price for farmers for that season.
The revised forecast for the 2006/07 season of $4.35 comprises the milk price component of $3.84 which has increased 14 cents and the value add component of 51 cents, which is up 6 cents.
The 6 cent increase in the value add component is the result of ongoing cost efficiencies and higher sales in the value add businesses, Mr van der Heyden said.
ANZ yesterday reported world prices for New Zealand commodity exports surged to a new record, mainly thanks to high dairy prices.
The ANZ World Commodity Price Index rose 4.8 per cent in April, to be up 21 per cent on a year earlier.
However, the New Zealand component of ANZ's index rose just 0.1 per cent as the New Zealand dollar gained against all the currencies of major trading partners.
"Once again a rise in dairy prices has underpinned the jump in the world commodity price index," ANZ economist Steve Edwards said.
The world price of dairy products increased 11.8 per cent in April, up 58 per cent from where they stood a year earlier.
Behind the rise in global prices were restricted supply, including the Australian drought, growth in demand, and a change in product mix out of the European Union.
However, returns for farmers have been reduced by the New Zealand dollar's rise to a post float high. It hit a high of US74.93c late last month but has since eased to around US73.50c.
- NZPA
