Fonterra has cut its 2008/09 payout forecast by 60 cents to $6 a kilogram of milk solids. The reduction follows a 24% drop in international dairy commodity prices in the last eight weeks.

But Fonterra said the San Lu debacle was also partially responsible for the magnitude of the payout cut although it did not say by how much .Depending on what happens to international dairy prices, the currency and San Lu’s liabilities, the payout may fall further this year.

Fonterra Chairman Henry van der Heyden said declining prices across all commodities, including dairy, had been exacerbated in recent weeks by the global financial crisis. “There is a great deal of uncertainty around the world, industry and trade activity is slowing down and all the forecasts are pointing to a global recession,” he said. “We have seen a real tightening in consumer spending and dairy is not immune to this rapid deterioration in the global economy.

Fonterra has announced it will stop its farmer owners who want to become contract suppliers from selling shares back to the dairy cooperative because it wants to preserve cash amid the global Credit Crunch.  Chairman van der Heyden said the changes to the terms of contract milk supply for next season were “necessary and recognise the absolute priority the Fonterra Board places on protecting the interests of our farmer-shareholders, who make up 96% of our supply base”.

Contract milk will be available only to ‘growth milk’ from existing farmers or new milk from conversions. “Shareholders will not be able to surrender, or cash-up, shares to supply on contract,” van der Heyden said, adding that the contract milk price would be set at 10 cents below the regular milk price in 2009/10. (more…)