Wellington, Nov 21 NZPA - Fonterra says its 10,000 farmers should plan on receiving only about 75 percent of the money they pocketed last season, as the dairy giant battles the international economic recession.

The cooperative today warned its farmers to expect a payout of only $6/kg milksolids this season, 24 percent down on the $7.90 windfall earned by last summer's milk. But directors have not yet cut back the advance payments farmers are given through the season.

"No one should underestimate what is actually happening in the global markets," Chairman Henry van der Heyden said in a broadcast to farmers.

"We are starting to show signs ... that we are moving into an economic crisis."

"This is probably the worst that it has been for two generations," he said. "The message is for farmers to be cautious in their planning.

"On my farms, I'm just telling everybody to just hunker down".

Slowing world growth and deteriorating consumer confidence were hitting the prices likely to be paid for butter, cheese and milk powder before the season ends in the middle of next year.

The company controls nearly 40 percent of the international dairy trade, but has been watching prices plunge on commodity markets.

Chief executive Andrew Ferrier told shareholders that instead of prices flattening out and starting to rise again, they are likely to keep on falling, further than had been expected.

World prices of butter, milk and cheese are down about 42 percent from record levels a year ago and Mr Ferrier said the Dow Jones financial indices showed a drop in dairy commodities of 21 percent in October alone.

The $6 forecast today is 14 percent lower than Fonterra's original estimate of $7, which was cut to $6.60 in September.

Last season, Fonterra gave farmers their highest payout payment in 43 years, in inflation-adjusted terms. It paid a record $7.90/kg, which added up to $9.3 billion for its 10,724 farmers -- the equivalent of an average $867,213 for each of them.

Mr Ferrier said the medium-to-long-term outlook for dairy remained positive but as the world economy retreated, commodity stocks were building and these would need to be cleared before prices improved.

"A rebalancing of the market is unlikely in the short-term," he said

Mr Ferrier said the $6/kg forecast comprised a milk price of $5.60/kg, down 65c, and a value return of 40c/kg a 5c increase.

Lower commodity prices would improve margins in some markets for the consumer brands businesses, but Fonterra expected lower demand for such fast-moving consumer goods.

The price set for Fonterra's cooperative shares at the end of last season slumped by 18 percent to $5.57/share, down by $1.22 from the 2007 season, driving down the total shareholder return -- a key business indicator for farmers -- by 13.4 percent.

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