Fonterra has raised its forecast payout to farmers by 75c per kilogram of milksolids as dwindling production in Europe, Australia and New Zealand in the face of firm demand has helped re-balance global supply and demand.

The Auckland-based company expects to pay $6 per kilogram of milksolids in the 2017 season, up from a forecast of $5.25/kg and up from the $3.90/kg it paid out in 2016. The company also affirmed its forecast earnings per share of 50c to 60c with the higher milk price likely to hit margins, while moving extra milk into higher-value consumer and foodservice products in the first quarter.

"We've seen falling production in the major exporting regions, particularly Europe and Australia, and an unprecedented decline in New Zealand milk supply due to wetter than normal spring conditions across most regions," said chairman John Wilson.

"We are very mindful that farm incomes will be affected this year because of lower milk production so we will be doing everything possible to build on our good start to the financial year and deliver the highest possible total payout to our farmers."


Dairy prices rose for a seventh time in eight auctions this week as dwindling supply in the face of robust demand boosted competition to secure product.

Fonterra yesterday said its first-quarter revenue rose 6 per cent to $3.8 billion, outpacing a 2 per cent increase in the volume of sales to 4.9b liquid milk equivalents, on a gross margin of 22 per cent.

Operating expenses fell 2 per cent to $621 million and the world's biggest dairy exporter shifted 128m litres of liquid milk equivalent into higher-value consumer and food service products, which bolstered its 2016 annual result.