Fonterra has announced its payout forecast has been reduced to NZ$6.00 per kilogram of milk solids from NZ$6.60 per kilogram as global dairy prices fall, including a 39% drop in cheddar prices from a year ago. The revised forecast strengthens expectations that the New Zealand economy is facing a prolonged recession deep into 2009, and puts added pressure on Reserve Bank Governor Alan Bollard to cut the Official Cash Rate by at least 100 basis points on December 4. ANZ rural economist Kevin Wilson told Interest .co.nz that a payout of NZ$6.00 would still be historically high. Although dairy prices are down on last year, for cheddar and butter they are still much high than prices two years ago. "Last year's payout was extraordinarily high," Wilson said.

Global cheddar prices have fallen by 39% in US Dollar terms from the same week last year. In New Zealand Dollar terms, cheddar prices fell 16% from last year. However, prices for cheddar are still well up from two years ago, 22% higher in US Dollar terms and 51% higher in New Zealand Dollar terms. Butter prices in US Dollar terms are down 35% from last year, but still up 52% from two years ago. In New Zealand dollar terms prices are still 88% higher than two years ago. Whole milk powder prices in US Dollar terms are 50% lower than a year ago, and 2% lower than two years ago. In New Zealand dollar terms, prices are 30% lower than a year ago but 21% higher than two years ago.