http://nz.biz.yahoo.com//091109/3/fksp.html

Fonterra's boost of nearly 20 percent in its forecast milk payout is not only buoying the New Zealand dollar -- farmers are pretty chuffed about it too.

The kiwi jumped from US72.45c to US73.40c on today's announcement that Fonterra had boosted its forecast pay-out to farmers to $6.05/kg milksolids.

An average Fonterra farmer can expect a cheque for about $750,000.

This would lag only the 2008 season, when the payout was $7.90, including 24c/kg held back by the cooperative, and the average farmer received nearly $900,000. The 2009 payout last season was $5.21/kg, including a 1c retention.

The payout boost will add an estimated $1.2 billion to the economy, according to ANZ National Bank economists, and Fonterra farmers are now looking at their second-highest payout on record this season.

If farmers spend their windfall when it is paid out next year, there is potential for it to lift the national economy more than has so far been forecast by the Reserve Bank.

Federated Farmers said its members were "excited" by the second upwards revision since the $4.55/kg season forecast was announced in May. "There will be an audible sigh of relief from all dairy farmers as this provides a key marker for all dairy farmers irrespective of whether they supply Fonterra or not," said Federated Farmers' dairy chairman, Lachlan McKenzie.

"Anything over $6/kg is historically very high."

Mr McKenzie said the appreciation of whole milkpowder, up more than 50 percent over the past couple of months, was "frankly, unprecedented".

It was too early to crack open a "celebratory carton of milk" but the figures had a solid feel. Mr McKenzie said the "exuberance" of the rush for "white gold" in 2008 was history.

"For the majority of farmers carrying little debt, I imagine they will be looking to bank their gains with the final payout next year," Mr McKenzie said.

Farmers would be more than relieved because rising farm costs meant the initial $4.55/kg season forecast translated into a cash loss for the average dairy farm.

The lifts in projected prices -- the first on September 27 and today's -- meant the average dairy farm is now be looking at a cash surplus.

"For the minority who are highly geared, we anticipate both them and their bankers will be prioritising debt reduction to get their balance sheets into some form of order."

Noting the $5.20 farmers received last season was initially forecast at $7/kg, Mr McKenzie said the "rollercoaster ride" over the past few seasons underscored the need for all dairy farmers to be more conservative in running their businesses.

He said the big range of pay-outs in the space of two years meant banks were less likely to lend to farmers with debt.

Other commentators said the windfall would help bolster farm values -- but bankers assessing their lending to the sector would look closely at the sustainability of the commodity price rises.

The Fonterra Shareholders' Council also welcomed the payout rise, and council chairman Blue Read said cooperative members would be "both pleased and surprised".

"Fluctuations in the forecast adjustments our farmers have been getting for their milk, particularly during the past two years, clearly demonstrate the volatility of the global market place," he said.

"This news should help restore farmers' confidence."

Mr Read said the increased pay-out would potentially enable more farmers to take up Fonterra shares in the first stage of the Fonterra's three-step capital restructure, when it plans to allow farmers to buy more shares, not linked to how much milk a farmer supplies the cooperative.