Chief executive Andrew Ferrier confirmed the opinion of industry observers that the end-ofseason payout would exceed $7.30 a kg of milk solids, saying industry prospects remain buoyant and would do so for some years yet.
Westpac agribusiness economist Doug Steel expected Fonterra's end-of-season payout could be $7.40-$7.50 a kg of milk solids and predicted the payout to fall to about $6.50 next season and $5.60 in 2009-10.
It was unlikely to stay around $7, but ‘‘historically speaking, it is still likely to be healthy'', he said.
Mr Ferrier said the industry still had prosperous times ahead, saying the payout was likely to be above historic levels for some years to come, but warned there could be some volatility.
Dairy stocks in Europe and the United States, which had historically calmed market volatility, had disappeared and while consumer demand showed little sign of letting up, that could lead to some short-term supply and demand imbalance, Mr Ferrier said.
Milk powder last year hit a record high of $US5000 a tonne, but had a long-term average of $US2000 a tonne.
Mr Ferrier expected powder prices for the next few years to trade above $US3500 a tonne, driven by growing demand for food and the increasing cost of grain.
‘‘All these things signal a new level of pricing which is significantly higher than we have seen in the past,'' Mr Ferrier said.
There had been some ‘‘demand burn-off'' due to high prices, but Mr Ferrier said the extent to which that became an issue depended on where prices settled.
If that was below historic highs, Mr Ferrier did not expect too much resistance.
Mr Steel said weaker economic news in New Zealand was expected to result in a lower exchange rate over the next year, which would shelter some of the expected fall in commodity prices from their record levels.
‘‘I do think the payout will come back to some extent, but it won't come back as much as the decline in international prices because the New Zealand dollar will fall as well.''
Even at the $5.60 a kg of milk solids payout Mr Steel has forecast for the 2009-10 season, converting from sheep and beef to dairying would still be viable, but he said it depended on cost increases.
The decline would come as a reality check for dairy farmers, Mr Steel said, and was a warning to keep a lid on costs.
Skim milk powder prices fell sharply from a peak of more than $US5000 a tonne between last July and September, to $US3000-$US3500 a tonne last week, due to competition from the United States.
Mr Steel said skim milk powder exports from the United States for the first two months of this year were up 76% on a year ago as suppliers reacted to higher prices.
‘‘That has certainly put downward pressure on prices,'' he said.
Whole milk powder had also eased closer to its 10-year average of $US2000 a tonne after peaking last year at $US4800 a tonne.
Mr Steel said increased dairy supplies from around the world would have a medium-term impact on global prices.
The growth of dairying in Southland especially was an example of that trend.
‘‘It is not only happening in New Zealand, but in many other parts of the world.''
