Hokitika-based Westland Milk Products, New Zealand's second biggest dairy co-operative after Fonterra, said it had confirmed its final net average cash payout to suppliers for the 2015/6 season will be $3.87 per kg of milk solids.

Westland had previously predicted the payout would be in a $3.80 to $3.90 range - well below Dairy NZ's estimated break-even point of $5.05/kg.

"We did what we could to maintain farmers' cash flows by starting the season with a higher advance rate of $3.80 per kg and holding this throughout,"
chairman Matt O'Regan said in a statement.

O'Regan said the reasons for 2015-16 lower payout season have been well understood - global over supply exacerbated by European farmers lifting production after milk subsidies were cut, and the persistently high New Zealand dollar.


"All of this has resulted in most dairy farmers returning to a largely pasture-based production model, reducing if not eliminating bought-in feed," he said.

Many Westland shareholders had confirmed that they had cut their spending by 20-30 per cent yet maintained milk production at 97 per cent compared with the previous season.

The season just passed had reinforced the message that for dairy companies such as Westland to prosper a significant portion of their sales and margins would need to come from value added products, O'Regan said.

Westland is forecasting a cash payout range for 2016-17 of $4.55 - $4.95 per kg with an advance payout rate of $3.80 per kg from September through to June.

"The board recognises the market is moving but, given the analysis around potential pricing volatility, we remain cautious," O'Regan said.

"The advance rate pricing reflects our commitment to supporting our shareholders and good cash-flow management by the co-operative," he said.

Fonterra last week said it would pay out $4.30/kg for the 2016 season, comprising a farmgate milk price of $3.90 per kg and a dividend of 40 cents per share.

The co-operative has also raised its farm gate milk price forecast for 2016/7 by 50c to $5.25 a kg of milk solids - its highest point in two years and its second upgrade in less than a month.

Fonterra's total payout available to farmers in the 2016/17 season is $5.75 to $5.85 before retentions. This includes a forecast earnings per share range of 50 to 60 cents.