Wellington, Sept 22 - New Zealand's Fonterra, the world's largest dairy exporter, raised its forecast payout for the coming season by 12 percent on Tuesday, citing improved market conditions, sending the New Zealand dollar higher.
The group, which controls around a third of the world's dairy exports and generates about 7 percent of New Zealand's gross domestic product, said the kiwi dollar at its current levels around $0.70 remained a concern, but had been taken into account in the forecast.
Fonterra raised its estimated payout to farmer shareholders to NZ$5.10 per kilogram of milk solids for 2009/10 from a previous estimate of NZ$4.55.
"What we're seeing in the international market is the firming of a trend, with a more positive sentiment and stronger demand, producing better pricing across the board," chief executive Andrew Ferrier said in a statement.
But Ferrier warned pricing was still volatile, making forecasting challenging.
The kiwi jumped on the news to a five-day high of $0.7150 by 2320 GMT, also helped by data released earlier on Tuesday showing a surprise surplus in the second quarter current account balance.
Fonterra, an unlisted co-operative owned by around 10,700 dairy farmers, had set the initial NZ$4.55 forecast for 2009/10 in May. That compares to an estimated payout for the 2008/09 season of NZ$5.20, a figure which will be finalised when Fonterra announces its annual result on Wednesday.
Prices for whole milk powder have risen a total 56 percent in Fonterra's past two monthly Internet-based auctions on improved demand and reduction in global stocks.
On Sept 18 Fonterra unveiled plans to issue shares to new shares to farmers to strengthen its balance sheet and raise funds for expansion.
Some analysts had previously suggested the co-operative would be forced to lower its 2009/10 payment below NZ$4 a kilo because of weak markets and strong currency.
Both the United States and European Union have reintroduced export subsidies for their dairy farmers to cushion them against the market downturn.
Fonterra, whose brands include Anchor and Fresh n'Fruity, competes on world markets against food conglomerates such as Nestle , Kraft Foods Inc and Danone.