The giant New Zealand dairy cooperative Fonterra expects to pay a record price to its members for milk solids for the 2007-2008 season, raising its payout forecast to NZ$6.40 (US$4.58) per kg of milk solids, $0.87 above the payout it forecast in May.

Fonterra chairman Henry van der Heyden attributed the rise to the continued strength in commodity prices, particularly recent increases in butter and cheese and ongoing firm prices for milkpowders.

World cheese and butter prices have increased more than 50% over the past few months, and milk powder prices are holding at levels more than double historical long-term prices, van der Heyden added.

Van der Heyden said the prices achieved since the start of the season in May had more than offset the continued strength in the New Zealand dollar.

“We have seen huge volatility in the New Zealand dollar which has risen to historic highs and then plummeted recently,” he said. “While we are using a 71 cent spot rate in our forecasts, we have to acknowledge that rates have not settled and could go either way. If the lower dollar is sustained over time, we could see more upside in payout, but this is not the time to be gambling on that.”

Fonterra CEO Andrew Ferrier said the co-operative was on track with its sales targets for the year and was happy with its position across all of its product groups.