The New Zealand dairy co-operative raised the price by NZ75c (67c) to $NZ4.60 a kilogram milk solids.
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The rise comes despite what the chairman described as “extremely challenging trading conditions”.
Still, normalized earnings before interest and tax surged 94 percent to NZ$974 million amid a recovery in margins, particularly in the ingredients business. Consumer products operating profit in China leapt more than five-fold to a record NZ$45 million, with sales volumes up 33 percent.
The cooperative has increased its forecast payout for the 2015/2016 season by 75c, through a boost in the farmgate milk price rather than the dividend.
The cooperative will pay $4.65, a 100% share-backed farmer, comprising a Farmgate Milk Price of $4.40 per kgMS and a dividend of 25 cents per share.
Mr Wilson said the lift in profitability in the second half of the 2015 financial year was expected to carry through into the current financial year.
Fonterra’s net profit the previous year was $179m, down 76 per cent. Its pre-tax profit slumped by 50 per cent, from $1b to $503m.
“Current global prices are unsustainable”, Mr Wilson said.
Fonterra remains cautious about the way ahead, with chief executive Theo Spierings saying geopolitical turmoil the Middle East and Russian Federation, Ebola in Africa, an economic slowdown in China and the sharp drop in oil and mineral prices means that world markets are likely to be hard in the medium-term.
Investments in New Zealand over the year represented additional capacity of 8.2 million litres and included $132 million spent on anhydrous milk fat, milk protein and reverse osmosis plants at Edendale in Southland.
“Sentiment for the kiwi has been positive for the past couple of days” on the Guoxin announcement and Fonterra’s payout forecast”, said Sue Trinh, senior currency strategist at RBC Capital Markets in Hong Kong.
Fonterra is continuing the business review it started at the end of a year ago to reduce its costs.
It might be bad news for farmers in some regions but if it pushes the payout higher the wider co-operative will breathe a sigh of relief.
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On the back of the recent lifts in dairy commodity prices seen at recent auctions, they have been confident to raise the predicted payout for this 2015/16 season to $5 – $5.10/kg ms which includes a 0.40c – 0.50c divident payment. If a farmer can not produce milk, it is a moot point whatever the milk price is.
