Fonterra's decision to hold its forecast milk price and slash the dividend surprised farmers who were expecting a further boost in the payout.
After its quarterly review, the Fonterra board has decided to hold the forecast Farmgate Milk Price at $8.30 per kg of milk solids and lower the dividend by two thirds from 32 cents to 10 cents a share.
The combined impact means that the total forecast payout to farmers for the season drops from $8.62 to $8.40 per kg.
Fonterra shares fell 34 cents on Wednesday to $5.76 and dropped another cent on Thursday morning on the news.
Waikato University's agribusiness professor Jacqueline Rowarth says farmers are unhappy because it's removed an estimated $250,000 from the share value that the average dairy farm has in Fonterra.
She says that could have a negative impact on them in terms of their ability to borrow and how the banks view them as viable entities.
Fonterra said the forecast adjustment is due to the unprecedented gap that has grown between the escalating milk powder returns that the milk price is based on, and the price of other processed products, such as cheese and casein, that provide the dividend.
Fonterra Shareholders Council chairman Ian Brown expects some farmers will be disappointed that the co-operative hasn't given the milk price the further boost, that was widely expected.
But he says the decision is a prudent one in view of what's been happening to prices on the world market.
Mr Brown points out that the $8.30 milk price, if it stands, will still be a record.
And Fonterra is increasing its monthly advance payments to farmers by 30 cents to $5.80 per kg, from January.
