LATEST: Fonterra has announced its payout before retentions has increased to $7.90 - $8.00 per kg of milksolids.

This is a 60c rise from the last figure of $7.30 - $7.40 per kg.

Fonterra is set to announce a payout increase following a board meeting late on Tuesday afternoon.

The dairy giant is tipped to raise the forecast paid to co-operative shareholders, after a bumper start to the year has seen record milk powder prices.

The globalDairy Trade auction has recorded a 24 percent rise in auction prices since December, the last time the payout was revised.

Speculation over a payout lift has seen the dollar rally nearly 35 cents on the greenback over the weekend.

ANZ National bank Head of Market Economics, Khoon Goh, says it’s no surprise the market has been preparing itself for a big announcement.

“We will just have to wait for the actual announcement, because part of that has already been factored into the markets.

“The question is, ‘what will the actual number be?’

“The markets are expecting an increase of anywhere between 30 and 50 cents.”

Mr Goh says the forecast payout won’t be affected by last week’s price freeze on New Zealand milk, because domestic supply only makes up a tiny proportion of Fonterra’s business.

“95% of dairy production is exported, so you might freeze 5%, it’s not going to have a large material impact in the large scheme of things.

“The international dairy price is continuing to rise, in fact international food price generally is going up.”

Fonterra Chairman Sir Henry van der Heyden has said previously the co-op will adjust its payout as dictated by the market, and following last week’s positive statements from CEO Andrew Ferrier, they could be looking at as much as 50c per kg of milk solids.

That announcement to freeze on shelf milk prices is raising the eyebrows of some industry experts.

Some commentators say judging by history, we may see a spike in the price of dairy products when the freeze ends.

Lincoln University’s farm management professor Keith Woodford says in the past, when price restrictions are lifted there has been an immediate price blowout.

"Those that have been around for a long time will remember the '60s and '70s when there were lots of price freezes, you remember the distortions and the blow outs that occurred when the freezes came off.

"Lessons we’ve learned from history are price freezes sound good on the surface, but they don’t always lead to the long term outcomes that you hope for."

Mr Woodford says the freeze could actually increase pressure on Fonterra’s competitors, who don’t benefit from the stability in milk prices.