Sheep farmers who sold their flocks to tap into the dairy boom are in for a tough time as plunging milk prices force dairy farmers to slash spending.
Last year's record milk payouts prompted a rush of dairy farm conversions. Other farmers moved to growing feed crops for dairy herds and providing grazing for dairy cows, in place of raising sheep and beef cattle.
However the rapid decline in this season's milk prices has forced dairy farmers to drastically revise their budgets.
The pressure increased on Wednesday when Fonterra slashed its forecast milk payout by 90 cents to $5.10 per kilo of milk solids.
The country's biggest farming operation, Landcorp, which has 37 dairy farms and 35,000 cows, is among those cutting spending on supplementary feed such as grain and maize silage used to boost milk production.
Chief executive Chris Kelly said the speed and size of the milk price fall has meant rapidly changing dairy farming practices. Landcorp has stopped using large quantities of supplementary feed and has returned to more traditional methods such as feeding cows mainly on pasture.
Mr Kelly anticipates that some farmers who have converted their farms to a dairy support role will move back into sheep and beef.
He said Landcorp is also building up its sheep numbers again and has bought several more dry stock farms.
Some agricultural contractors have complained about dairy farmers have walked away from contracts they negotiated for maize silage supplies this season because of the drop in their income expectations.
Federated Farmers' national dairy farmers chairman Lachlan Mckenzie is urging farmers to honour the contracts, as reneging would undermine business intregrity.
