Farmer suppliers to dairy giant Fonterra will be bracing for further falls in this season's milk payout as world commodity prices continue to fall.
The co-operative slashed its forecast payout to farmers last week from $6 per kilogram of milk solids to $5.10, potentially sucking $2 billion out of the New Zealand economy.
Another drop in the payout is on the cards after the ANZ monthly commodity price index showed world prices for dairy products fell 12.3% in January.
The trend looks set to continue in Feburary, after Fonterra's monthly milk powder auction yielded a further 8% fall.
Dairy industry sources say Fonterra is carrying higher inventories of un-sold stock than usual and these falls could shave up to 20 cents from this season's payout.