Fonterra farmers are in line for one of the biggest milk price payouts in the co-operative's history.

The dairy giant has raised and increased its farmgate milk price range to be between $7.90 and $8.90-per kilogram of milk solids for the 2021/2022 season, up from between $7.25 and $8.70.

"At a $8.40 midpoint, this would equal the highest Farmgate Milk Price paid by the Co-op, and would see almost $13 billion flow into regional New Zealand through milk price payments this season," Fonterra chief executive Miles Hurrell said.

The last time the farmgate milk price hit $8.40 per kgMS was in the 2013/2014 dairy season.

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"We have seen demand from China ease over the past couple of months, while other regions have stepped in to keep demand firm. On the supply side, overall global milk supply growth is forecast to track below average levels, driven by a slowdown in US production due to the increased cost of feed."

At the company's full-year result announcement in September, the company said it wanted to maintain an average milk price range of $6.50 - $7.50 per kgMS.

Hurrell said that while the increase in milk price can pressure on its input costs, he remains comfortable with the current dividend guidance of between 25 cents and 40 cents per share.

It is still early in the season, a lot can change, and there can be increased volatility when prices are high, he said.

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"This is why we're maintaining a plus or minus 50 cents forecast range, reflecting the continued uncertainties at this point in the season."

These included the ongoing impact of Covid-19 on global markets, inflationary pressures from supply disruptions and skills shortages, volatility in exchange rates and dry weather, he said.

Republished by Arrangement