Westpac also expects Fonterra to raise its own milk price forecast.
Westpac also expects Fonterra to raise its own milk price forecast.
Fonterra Cooperative Group, the world's biggest dairy exporter, has lifted its forecast milk payout to farmers by 50 cents in the 2014 season as global supply remains constrained and as a weaker local currency bolsters export returns.
The company expects to pay $7.50 per kilogram of milksolids and an estimateddividend of 32 cents per share, it said in a statement. That was ahead of the $7.40 per kgms predicted by Westpac economists last week. Fonterra will pay $5.80 per kgms in the 2013 year, which ends today, and anticipates a dividend of 32 cents per share.
"Supply constraints in Europe and China during the Northern Hemisphere spring have contributed to an increase in dairy prices of 3 percent over the past two months," chairman John Wilson said. "In addition, the NZ dollar has weakened against the US dollar. These factors have contributed to our updated forecast."
The upgrade comes after Fonterra last week warned 2013 annual earnings will likely be 7.3 percent below forecast due to the local drought at the start of the year and aggressive competition in Australia.
Chief executive Theo Spierings said rising commodity prices mean Fonterra will face higher costs in the first half of the 2014 financial year and its margins could come under pressure.
"Taking into account the headwinds we face and current market volatility, the FY14 estimated dividend of 32 cents per share may be outside the 65 to 75 percent range" of adjusted net profit, he said, referring to Fonterra's dividend policy.
Fonterra's board has amended its dividend policy from the 2014 financial year onwards, taking into account short and medium term earnings, along with market conditions and the company's financial position. It will also adopt "qualitative" earnings guidance, meaning it won't put numbers around future earnings per share.
"This new policy will enable the business to provide a longer term view on any potential volatility in earnings," Wilson said.
