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Dairy giant Fonterra has copped a serve from farmers after signalling that its forecast milk payout is likely to drop again - a month after announcing a 9 per cent (60c) downgrade.
Chairman Henry van der Heyden said yesterday that the continuing fall in international commodity prices, fluctuations in the New Zealand dollar, and the worsening effects of the global financial crisis meant a cut in the forecast payout of $6 a kilogram of milksolids was increasingly likely.
"There's no question, right now, that there are downside pressures on payout," he said.
Federated Farmers' dairy chairman, Lachlan McKenzie, said although the news was not unexpected, the November forecast should have been more prudent.
"The thing critical to Federated Farmers and to supplier-shareholders is for Fonterra to be realistic with its next forecast."
About $12 million was lopped off on-farm incomes with every cent shaved off the milksolids payout, he said.
"While we don't expect Fonterra's next revision to be as bad as some smaller companies have forecast, dairy farmers need better certainty to undertake financial budgeting. These constant revisions are making this difficult. It's time for Fonterra to under-promise and over-deliver."
Last week Westland Milk Products slashed its forecast payout to between $4.10 and $4.50 a kg of milk solids - down significantly from a report a month earlier of a payout of between $5.20 and $5.60 a kg. Last year it paid $8.29 a kg, with farmers receiving $7.99 while 30c was kept for capital investments and improvements.
A week ago primary industry analysts Agrifax forecast another fall in Fonterra's payout to around $5.15 a kg. Senior analyst Susan Kilsby had said the fall was in line with continued weakness in dairy commodities, a pessimistic outlook for the dairy market, and the ongoing strength of the NZ dollar against the greenback.
"There is definite pessimism in the market about the dairy sector and a feeling that dairy commodity prices are still yet to bottom out," she said.
"Even if there is an upswing in commodity prices in early 2009, we believe that any positive movement is now too late to have an effect on the current season's payouts."
Fonterra reviews its forecast payout next month and will announce any changes after the company's next board meeting on January 27.
UBS senior economist Robin Clements said it was hard to say what effect a reduction in dairy payouts would have on the overall economy.
Westpac economist Doug Steel said last week that, longer term, dairy prices were still expected to be higher than in the past. Once the credit crisis had passed, he said, prices were likely to be about 25 per cent higher.
