Federated Farmers is calling for Fonterra to be more realistic about its payout forecasts after the dairy giant yesterday indicated that a reduction in the current forecast of $6 per kg of milksolids was likely.
In November, Fonterra slashed its expected payout for this season to $6 - a 60c reduction in the previous forecast made in September following a drop in international dairy commodity prices.
Fonterra's warning of a likely revision downwards was not unexpected, Federated Farmers dairy chairman Lachlan McKenzie said.
"The thing critical to Federated Farmers and to supplier-shareholders is for Fonterra to be realistic with its next forecast.
"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."
About $12 million from on-farm incomes was cut every time 1c was shaved off the milksolids payout, he said.
That affected the entire economy.
Global commodity prices were still showing negative sentiment but the medium-term picture for dairy remained bright.
At least the New Zealand economy was based on exporting goods the world needed - food, Mr McKenzie said.
Fonterra will be reviewing its forecast payout in the next month and make an announcement on any change following the board's next meeting on January 27.
Fonterra chairman Henry van der Heyden said in a statement the continuing decline in international commodity prices, coupled with the worsening effects of the global financial crisis, including significant fluctuations in the New Zealand dollar, meant there was an increasing likelihood of a reduction in the $6 forecast.
There was a need for farmers to be cautious in their planning in the current environment.
"We've been keeping conditions under close review and we want to let farmers know as soon as possible if there is any change in the outlook or payout.
"There's no question, right now, that there is downside pressure on payout," he said.
NZX Agrifax, the rural information provider owned by NZX, is predicting a dairy payout of $5.15.
Agrifax senior analyst Susan Kilsby said even if there was an upswing in commodity prices in early 2009, it was too late for the current season's payout.
"We suspect that all of the processing companies will revise their predicted payouts for the current season downward before too long, and we expect Fonterra to adjust its payout downwards to around the $5.15 to $5.20 per kg range shortly," she said.
Westland Milk Products shocked the market before Christmas by reportedly telling its dairy farmers its payout would be between $4.10 and $4.40 per kg, about a $1 less than the payout announced a month ago.
