Fonterra, the world's largest dairy exporter, has said that it sees slowing global economies and declining consumer confidence reducing demand for dairy goods through to the end of its fiscal year in mid-2009.

The New Zealand dairy giant, which accounts for 40% of international dairy trade, cut its forecast payout to its 10,200 farmer-owners by NZ$0.60 (US$0.32) today (21 November). The revised forecast payout for the 2008/09 season totals NZ$6 per kilogram of milk solids.

The dairy cooperative said that a sharp drop in demand over the last two months had depressed dairy prices. The move follows a 24% drop in international dairy commodity prices in the last eight weeks, the company revealed.

"Over the last three weeks [in particular]… we've seen a rather sharp drop in commodity prices," Fonterra chairman Henry van der Heyden said in a 'Fonterra TV' broadcast to farmers.

"No one should underestimate what is actually happening in the global markets," van der Heyden said. "We are moving into an economic crisis."

Prices of internationally traded butter, milk and cheese have fallen by about 42% from a year ago, Fonterra revealed.

"In September, we saw a significant drop-off in global demand and dairy prices and at the same time we saw residual build up in markets like the US," Fonterra CEO Andrew Ferrier said in the broadcast.

"Over the last two months those signs have gotten even stronger, in particular the reduction in demand, and as we all know the global economies are slowing down dramatically."

Ferrier said that these trends have forced Fonterra to revise its outlook for dairy prices for the remainder of the year.

"We've had to look at our view that prices were going to come down, flatten out and move up before our year end. Now we are saying they are going to go down even further than we thought and they won't move up before our year end," he concluded.