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Fonterra last week announced an increase in its forecast milk price for the 2010/11 season from $6.60 to $6.90 per kilogram of milksolids (kgMS), according to

The forecast distributable profit range for the 2011 financial year is unchanged at 40-50 cents per share, as is the target dividend range of 25-35 cents per share. 

As a consequence, Fonterra now forecasts that a 100% share backed farmer will earn, on average, the equivalent of $7.30-$7.40 before retentions, comprising milk price (per kgMS production) plus distributable profit (per share held). On a cash basis, the same farmer is forecast to receive a total of $7.15-$7.25, comprising milk price (per kgMS) and dividend (per share) – with the balance of the profit being retained by the Co-operative. 

Fonterra Chairman Sir Henry van der Heyden said the board’s decision to raise the forecast milk price reflected the continuation of high international dairy prices further into the 2010/11 season. 

Chief executive Andrew Ferrier said global markets for key dairy ingredients remained finely balanced, with solid demand being underpinned by some growth in supply out of the northern hemisphere. 

“International dairy market prices have generally held up better than initially expected when we made the opening forecast back in late May. Offsetting this good news has been a stronger New Zealand dollar which is eroding the value of dairy export returns for our farmers,” said Ferrier. 

Ferrier said Fonterra was reviewing the potential impact of the recent dry conditions around New Zealand on anticipated production levels, and would update the board in due course. 

Sir Henry said that while farmers would no doubt welcome news of a higher forecast milk price, they were potentially facing much higher input costs if current dry weather continued. 

Sir Henry said Fonterra was working with regional drought committees, as well as Dairy NZ and the Rural Support Trust to provide advice and assistance to farmers. 

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