Fonterra has lifted its pay-out forecast to between $5 and $5.10 and announced a net profit after tax of $506 million - up 183 per cent - after a stronger second-half performance in difficult market conditions.

The increased payout will come as a relief to farmers struggling to remain profitable under previous forecasts, which went as low as $3.80.

Photo: File.

The forecast total available for pay-out is made up of farmgate milk price of $4.60 kgMS – up 75 cents and forecast earnings per share of 40-50 cents.

Fonterra chairman John Wilson says the improved forecast farmgate milk price reflects the lift in global prices since July, with whole milk powder increasing 44 per cent and skim milk powder 21 per cent over the period.

While the 2015-2016 pay-out figure is just a forecast, farmers now know exactly what they will earn for the current season.

The co-operative will pay a final cash pay-out of $4.65 for the 2015 season for a 100 per cent share-backed farmer, comprising a farmgate milk price of $4.40 per kgMS and a dividend of 25 cents per share.

However, John is warning that current global dairy prices are still unsustainable.

'While there are signs that supply growth globally is easing, a lift in demand, which is needed for prices to continue to rise, is still to come.”

In response to decreased prices, New Zealand farmers have been cutting production, with many culling significant numbers of cows. This is reflected in Fonterra lowering its forecast milk production for the season.

'We are five per cent behind last season to date and are currently tracking eight per cent down on last season on a weekly basis,” adds John.

Our annual results available now, 2015/16 forecast tot avail up to $5.00 − $5.10 per kgMS: http://t.co/ouypOK4Vx3 pic.twitter.com/RNiTyp7eb0

— Fonterra (@Fonterra) September 23, 2015

'Farmers are responding to the tough economic conditions and with cow numbers down, less supplements being fed and challenging weather conditions for much of the country, we now expect production to be down by more than five per cent for the season.”

Fonterra remains cautious about the way ahead, with chief executive Theo Spierings saying geopolitical turmoil the Middle East and Russia, 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 difficult in the medium-term.

'However, we will be more than ready when the market turns,” insists Theo. 'That's because we have thoroughly reviewed our execution of strategy, our processes and working practices to embed long-term change.

'We are focusing all our resources to resources to make us faster, more efficient, and achieve sustainable results.”

Fonterra's business review is an on-going process across the whole organisation to identify areas where the co-operative can find more efficiencies and improve future performance, he says.

As a result of that review, the company will cut 750 jobs, up from the 523 previously announced, resulting in savings of $103 million a year.

'Our business review is about always pursuing the full potential of our co-op so we are in the best position to drive performance now in these challenging times and when global conditions improve,” adds Theo.