Units in the Fonterra Shareholders' Fund fell to their lowest point since listing on the NZX in 2012 on the back of growing farmer and investor unrest over a weaker-than-expected interim result and the drop in the co-operative's forecast dividend for the full year.
Insiders said the price drop was mostly a reflection of disappointment over the result, released last month, which dashed expectations that a higher dividend would at least partly offset a low milk price.
Fonterra announced a 16 per cent drop in its first-half net profit to $183 million and lowered its dividend forecast to a range of 20-30c per share from 25c-35c. Fonterra's gearing ratio jumped to 50.7 per cent from 44.6 per cent a year earlier.
One fund manager said Fonterra had come from an environment of very high prices and high volume last season to elevated volatility this season.
"This is a real test for the Fonterra model, both as a co-operative and as a listed offshoot," he said.
The weakness in the price could come back to milk supply issues, said Forsyth Barr analyst James Bascand.
When farmers want to increase their production they have to buy more Fonterra shares. Fonterra's production is expected to fall by 2 per cent this season, freeing up farmers to sell shares that are surplus to requirements to raise cash.
Under Trading Among Farmers (TAF), the units mirror the price of the farmer-only shares.
"We might be seeing a dynamic whereby farmers are net sellers, which affects the value of the shares and the unit price as well," Bascand said.
At yesterday's close of $5.38 the units were down 7c from Thursday's close, and down 12c from the $5.50 original offer price.
The units - which give outside investors access to the dairy giant's dividend payments without conferring share ownership - debuted on the NZX at $6.66 - and went on to record a high of $8.09 in May 2013.
Early this week, the unit price weakened when Fonterra went ex a 10c interim dividend, and have fallen further since.
"All parties involved would not have expected the soft interim result - from institutional shareholders, to individual unit holders and to farmers as well," Bascand said.
There was talk that farmers were selling their Fonterra shares while opting to supply competitors who do not require their suppliers to hold capital, or to other co-ops such as Westland Milk who offer a lower cost of entry, but hard evidence of that is not likely before Fonterra reports its annual result on September 24.
ANZ, in its latest issue of Agri Focus, said the reduced dividend estimate came as a big surprise.
The bank said a continuation of a low dividend payment would "raise question marks over the execution of Fonterra's strategy".
Fonterra last year moved to shore up its supply base by forming a subsidiary that can take in more milk without suppliers having to buy shares in the co-operative.