Dairy giant Fonterra has cut its forecast payout to farmers, blaming the strength of the New Zealand dollar, higher production levels and declining commodity prices.

Fonterra yesterday (12 March) lowered its planned payout for the 2011/12 season by 15 cents to NZ$6.75-6.85. The dairy co-operative said it expects to pay a milk price of NZ$6.35 a kilogram of milk solids and a 40-50 cent a share distributable profit to its farmer-shareholders.

Fonterra chairman Sir Henry van der Heyden said the lower forecast reflected declining commodity prices. Prices had dropped in five out of the last six of Fonterra's online Global Dairy Trade (GDT) auctions. Overall, the GDT-Trade Weighted Index has dipped 5.7% since mid-December.

Van der Heyden also said the board was concerned about the strength of the New Zealand dollar and uncertainties in international markets.

These factors, coupled with higher levels of global milk production, prompted Fonterra's board to lower its forecast.

Chief executive Theo Spierings said dairy commodity prices were likely to remain under pressure for the next six months. He added Fonterra expects stronger global production continuing throughout this year.

"International milk powder demand, however, currently appears robust which should help offset the impact of the stronger milk supply growth," Spierings said.