Dairy farmers are being advised to use the milk payout increase forecast by Fonterra to clear overdrafts and reduce debt.
The co-operative has announced a 50 cent lift in the forecast payout for this season's milk to $7.50 a kilogram of milk solids, with a 32 cents a share dividend on top of that.
The total forecast cash payout of $7.82 is significantly higher than the payout for the past season ending in May, which is still to be finalised
Federated Farmers national dairy chair Willy Leferink sees the new forecast as an 'overdraft clearer'.
He says the increase in the monthly advance paid to farmers will also be a magic bullet in helping them to pay back credit extended to them during the drought.
Mr Leferink says some drought-stricken farmers spent a substantial amount of money buying supplementary feed.
He says it's a wise move to retire debt and even build up some funds, particularly if a farm's effluent system needs to work to meet regional council regulations designed to improve water quality.
Mr Leferink says drought was a major factor behind farm debt growing to more than $51 billion, most of that in the dairy sector.
Dairy NZ chief executive Tim Mackle is also expecting many farmers to use the extra money to ease overdraft and debt burdens.
He says while about 20% of dairy farms have almost no debt, another 20% carry 45% of the debt and farm costs keep going up.
Mr Mackle says the increase in Fonterra's forecast payout translates into another $845 million circulating in the national economy.