KEY POINTS:
Fonterra's 11,600 farmers look 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 almost three quarters of a million dollars per dairy farmer.
Westpac economist Doug Steel said international dairy prices had risen by a further 15 per cent since Fonterra announced a record forecast payout of $5.53 per kg of milksolids in May. That forecast was a lift of 27 per cent on last season and was due to give farmers an extra $1.5 billion in a milk payout of nearly $7 billion.
The latest indications are that international commodity prices have soared to levels that will enable a payout of around $6.60/kg of milksolids.
The average farm is expected to produce about 108,000kg, with some of the big farms producing four times as much.
Mr Steel said the extra surge of money into regional economies would make the Reserve Bank's job of trying to control inflation harder.
The Reserve Bank will review interest rates next week, with financial markets expecting another rise in the official cash rate. It is currently 8 per cent after three increases to date this year.
Earlier this week, Westpac markets economist Sharon McCaw said the dairy sector was producing "white gold" for the New Zealand economy.
She said dairy prices increased by 2 per cent per week over the past six weeks and doubled in a year.
Farmers will probably have to wait until September to see if Westpac Bank's prediction of further increases in the 2007-08 payout is accurate.
New Zealand's milkflows hit a record high last season, passing 1.31 billion kilograms of milksolids for the first time.
Federated Farmers' president, Himatangi dairy farmer Charlie Pedersen, fears the dairy industry could now become a scapegoat for any further interest rate rises.
He says farmers do not yet have the money in their hands and will not for at least another 18 months.
Mr Pedersen said the payout would go some way to redressing the tough times dairy farmers have had to suffer.
A payout boosted by $1.5 billion on top of Fonterra's forecoast would mean an average milk payment to farmers of more than $720,000 each this season.
- NZPA
