Dairy farmers are bracing themselves following a sharp drop in dairy prices, sparking concern that Fonterra could slash next season's payout.
Prices for dairy commodities fell by 10% at Fonterra's fortnightly global auction on Wednesday - the largest fall in nearly two years.
Fonterra cut the payout last month following months of weakening dairy prices as a result of an increase in milk production globally.
Federated Farmers dairy chair Willy Leferink says, following the shock drop, there's a chance next season's payout will be in the $5 range and he advises farmers to work that into their budgets now and to ensure they are prudent in spending and prudent when investing.
Fonterra is currently forecasting a payout of $6.75 to $6.85 a kilogram of milk solids this season.
Next season's payout forecast will be announced in May.