Fonterra is expected to announce today an opening milk price for next season of about $6 a kg of milk solids, well down on the $7.50 a kg final payout predicted for this season.
While the price is reviewed regularly during the season, international milk powder, cheese and butter prices have all eased from record levels in recent months, but remain well above long-term averages.
Together with an export-unfriendly exchange rate, the prediction is that next season's payout will be lower.
Westpac senior economist Doug Steel said in an interview he expected Fonterra to announce a new season price for 2008-09 of between $5.50 and $6 a kg of milk solids - "probably closer to $6," he said.
He predicted the final payout for next season to be about $6.50 a kg, but should the exchange rate ease, farmers could benefit further.
International whole and skim milk powder and cheese prices peaked late last year at between $NZ6000 and $NZ7500 a tonne and butter about $NZ5000, but all have started to come off those historic highs.
Powders and cheese are selling for between $4500 and $6500 a tonne and butter about $4000 a tonne, well above their historic averages.
Fonterra is not expected to announce its final payout for 2007-08 for several weeks, but Mr Steel said today's announcement could give an indication of how much more it will pay above the latest payout assessment of $7.30 a kg.
If the final top-up was more than 30c a kg, then Fonterra has said it would update suppliers today.
The board was also expected to indicate whether it would follow through with a proposal to retain some earnings from the record milk price.
Fonterra would today also announce the latest assessment of its fair value share, which all farmers must own to supply the company.
In December it increased the value of the share 22c to $7.01, the mid point in the $6.49 to $7.54 range assessed by independent valuer Duff and Phelps.
Mr Steel did not think it would lift again, given the financial pressure on Fonterra's value-added business from soaring milk prices.
"There's not much upside," he said.
The drought was also expected to impact on Fonterra's performance.
It has a goal of increasing milk flows 3% a year, but Mr Steel said the summer drought in the dairy heartlands of the North Island was likely to result in a 3% reduction in flows, from 1316 million kg last season to 1277 million kg for the 2007-08.
"It is certainly a pretty sharp drop in production, especially given the number of conversions underpinning a forecast increase in growth," he said.
