Commentators are picking Fonterra to today reaffirm a forecast payout for the current season of about $7 a kg of milk solids, but say market and supply volatility made forecasting difficult.
A payout of this magnitude would be one of the highest and, combined with an expected 10% increase in milk production as a result of areas recovering from last year's drought, would pump $1.5 billion more into dairy farmers' pockets than last year.
Fonterra will also announce its final payout for the 2009-10 season, expected to be slightly higher than early forecasts of $6.50 to $6.60 a kg/ms.
That figure consisted of a milk price of $6.10 and a distributable profit of between 40c and 50c.
The final payout is traditionally slightly higher than forecast.
Fonterra has previously forecast a payout range for the current season of between $6.90 and $7.10 a kg/ms, driven by a milk price 50c a kg/ms higher than last season and a distributable profit of between 30c and 50c a kg/ms.
Fonterra chairman Sir Henry van der Heyden has announced the co-operative would retain between 25% and 35% of the distributable profit.
Westpac chief economist Brendan O'Donovan said a complex matrix made forecasting the final payout difficult.
Fundamentally, there were some positive factors - growing demand from booming economies such as China and New Zealand's place as the world's largest dairy exporter, which meant we should be a major benefactor from that growing demand.
But global production was growing, including New Zealand's, where recovery from last year's drought should increase milk flows by 8% to 10%.
"Although the 2010-11 season is only just kicking off, it is shaping up as a pretty good one for dairy farmers, with a potentially lucrative combination of high commodity prices and elevated production."
Wet weather in Australia's main milk state of Victoria could help boost production a further 1% to 2%, while the United States also has higher milk flows.
Mr O'Donovan warned while prices on Fonterra's globalDairyTrade internet auction had recently lifted, they could ease towards the end of the year because of greater milk flows.
Prices on the sale's platform have fluctuated wildly, indicating some customers were not buying too far in advance.
The exchange rate will also be a factor.
The New Zealand dollar had appreciated about 10% since Fonterra's initial forecast in May, but hedging should absorb some of the impact of a firming currency, Mr O'Donovan said.
Assuming his forecasts proved accurate, $10.3 billion would be pumped in to farmers' pockets and find its way into rural economies through increased spending, investment and debt repayment, Mr O'Donovan said.
Rabobank's Agribusiness Review said current milk flows were about 5% ahead of the same time last year.
Mr O'Donovan said the potential accuracy of Fonterra's forecast was bolstered by Westland Milk Products' decision to increase its forecast for the coming season to between $6.50 and $6.90 a kg/ms.
Federated Farmers Dairy section chairman Lachlan McKenzie said he hoped Fonterra would lift its final payout for the 2009-10 season slightly to help those farmers hit by snow and rain.
