Fonterra is likely to lift its farmgate milk price payout to farmers when it makes its announcement next week but economists are divided about where the payout will settle.
The range of payout forecasts received yesterday ranged from $4.43 per kilogram of milksolids to the most optimistic of $4.80 kg/ms from ASB rural economist Nathan Penny.
Mr Penny also forecast the payout would lift to $6 a kg of milksolids before the end of the 2016-17 season.
The current forecast from Fonterra is $3.90 kg/ms, with DairyNZ estimating the average farmer requires $5.25 kg/ms to break even.
Mr Penny said the dairy season as a whole had been tough. The weighted-average prices for this season had been more than a third lower than their historical averages.
Fonterra was likely to open the new season largely in line with the prevailing market view.
"We expect Fonterra to aim at towards the higher end of the prevailing market view in order to support farm cash flows.''
Fonterra had helped farmers by bringing forward dividend payments and offering interest-free loans. If Fonterra preferred a more conservative milk price forecast, it might still address tight cash flows by paying advance rates to farmers at the higher of the normal ranges of 65% to 75%, he said.
Next week, Fonterra would also update the 2015-16 season milk price but ASB expected little or no change to the current $3.90 kg/ms forecast. Although based on modestly higher auction prices since the March update, the risk was Fonterra nudging the forecast towards $4 kg/ms.
Falling supply was expected to do most of the heavy lifting to get the global dairy market back into balance and lift prices, Mr Penny said.
New Zealand and Australian farmers were leading the way but European Union farmers were expected to follow.
New Zealand production this season was expected to end 2% lower than a season ago and the new season's production was expected to fall a further 3%.
Fonterra noted in its GlobalDairyTrade update this week that EU milk production increased 4% in the 12 months to February and United States production was up 1% in the 12 months to March.
