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Fonterra forecast drop

Dairy farmers are shrugging off a cut in Fonterra's forecast dairy payout - the second this season - while economists say the 15c chop is fairly predictable and the bumper production season should counter it.

Fonterra said it has cut its payout forecast for the 2011-2012 season by 15c to $6.75-$6.85 in the face of falling commodity prices and a strong Kiwi dollar.

The new forecast comprises a lower milk price of $6.35 per kilogram of milksolids, down from $6.50.

The season's distributable profit range forecast remains unchanged at 40c-50c a share. There have been price falls in five of the last six auctions on Fonterra's online platform Global Dairy Trade.

The New Zealand dollar slipped to US81.74c on the news, down from US82.05c earlier in the morning, before recovering to just over US82 before midday.

Chairman Sir Henry van der Heyden said the dollar's continuing strength, higher levels of global milk production and uncertainties in international markets prompted the board to lower the milk price forecast.

Federated Farmers said the cut was expected and was the result of Fonterra "playing a lot closer to the market now".

"They are a lot closer to reality (with payout forecasts) than in the past maybe," said federation dairy chairman Willy Leferink.

ANZ chief economist Cameron Bagrie said the cut is unwelcome but "a bit of a marginal call"  in its likely impact on farmers' bottom line because of the very good production season and lower feed costs.