KEY POINTS:
Dairy giant Fonterra releases its annual result and the latest forecast payouts to farmers tomorrow as its Chinese partner remains embroiled in a deadly milk powder crisis.
Fonterra paid US$107 million in 2006 for 43 per cent of Chinese dairy company San Lu - one of 22 firms
caught up in a chemical poisoning crisis that has killed at least four babies and hospitalised nearly 13,000 children.
Fonterra is forecasting a record payout for the last season of $7.90 per kg of milksolids - pumping about $9 billion into the economy - with a forecast for the new season of $7.
Westpac economist Doug Steel said the bank was picking $8.10 as the final payout for the last year and $7.10 by the end of the new season.
It was difficult to say whether China would impact on forecasts, Steel said.
"I'll be certainly interested in their assessment of how that plays through for the payout. Also the shenanigans going on in world money markets, see how they are taking that on board as well as the large declines in commodity prices that are now well and truly ingrained almost," he said.
"I don't think they'll be lifting this time round given what's been going on. I guess the question is more so whether they ease back on their $7 or not."
It was difficult to estimate the impact of the crisis on the wider economy.
"That's really for Fonterra to shed some light on and we're certainly looking for some comment around that on Wednesday," Steel said.
A Fonterra spokeswoman said the company would comment on China as part of the annual result.
The ANZ Commodity Price Index for dairy products rose for 15 consecutive months from 127.6 in August, 2006 to hit 291.9 in November but has since fallen back to 238.6 in August.
ANZ chief economist Cameron Bagrie said health safety was a big issue for food exporters.
"Commodity prices are driven by demand for what Fonterra exports, it's driven by both the supply and demand, and demand's a function of income but it's also a function of brand and perception," he said.
However, Bagrie was not looking for more detail tomorrow on the economic impact of the crisis.
"How's this going to impact the brand, how's it going to impact overall global dairy demand? You touch wood it's going to be a very small impact but you just don't know."
Federated Farmers Dairy chairman Lachlan McKenzie said farmers were not worried about an impact on the payout.
The crisis was with San Lu in China, not Fonterra, he said.
"Farmers are getting a little bit grumpy with accusations that Fonterra has not done enough and it is Fonterra's fault," McKenzie said. "Adulterated milk comes into the factory and it appears that Fonterra is the one that has actually blown the whistle on this."