Fonterra is warning dairy farmers that a reduction in the forecast payout for milk solids is increasingly likely.
The dairy cooperative's chairman, Henry van der Heyden, says a continuing decline in international commodity prices, coupled with the worsening effects of the global financial crisis, is to blame.
The forecast payout for milk solids was cut to $6 per kilogram on 21 November, following a drop in international dairy prices. It was previously cut from $7 per kilogram to $6.60/kg on 25 September.
Mr van der Heyden says farmers need to be cautious in their planning in the current environment.
He says Fonterra will review its forecast payout over the next month and any change will be announced at the end of January.
Federated Farmers says the warning of a reduction has not come as a surprise.
Dairy chairman Lachlan McKenzie says some smaller companies have been struggling to meet their payouts. So that farmers can plan ahead, he urged Fonterra to be realistic and not "over promise" in its next forecast.