"There's nothing more depressing than knowing when those big tankers come on to your farm you are paying Fonterra to take your milk away."

Depression is not a word New Zealanders associate with dairy farming, but Farmers of NZ operations director Bill Guest is stating the obvious.

Fonterra's price signal for the coming year of $3.85 per kg of milksolids is nearly $2/kg short of what the average dairy farmer needs to cover costs.

On an average-size farm with annual costs of around $900,000, that's an operating deficit of $260,000, Dairy NZ estimates. For most, that spells increased borrowing but that option won't be there for the heavily indebted.

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"I would say people with $1 million of debt are not going to survive," Guest says.

There will scarcely be a profitable dairy farm in New Zealand this year in cashflow terms and the effects of farmer belt-tightening will ripple through service industries and provincial towns and on to the Government's coffers.

The Government may play down the effects - Finance Minister Bill English says the dairy sector accounts for only 20 per cent of exports; Dairy NZ says it's 29 per cent - but some analysts predict a $1.5 billion fall in GDP.

That's similar to the effect of the one-in-50-year drought that hit rural New Zealand in 2013.

Right now, though, all the weight is being borne by dairy farmers as banks ponder the balance sheet implications of another year of low incomes and associated declines in stock and land values.

It's the lowest farmgate price since 2002, and some analysts say Fonterra will struggle to make the $3.85 forecast. Dairy NZ is estimating $3.65.

Last year's payments were well below recent norms, although the blow was cushioned by deferred payments from the record 2013/14 price.

But in July, for the first time, farmers received no retrospective payments - meaning no income until milking gears up.

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While only a few dairy farms are now on the block, many more farmers are expected to attempt an "orderly exit" from the industry in the coming months - before they are forced out.

"The banks are making offers to farmers they can't refuse - sell up or face the consequences," Guest says.

Auckland lawyer John Waugh says some of his rural clients are "facing difficult times and hard choices - there is stress out there".

"Generally the banks are supportive of farming businesses - there's an intent to make sure they get through this cyclical process," says Waugh, who has worked in banking.

"But there are a good number of farms that, based on current forecasts, are not viable - the payouts will not cover their costs so banks are reluctant to lend them more money.

"A small number are considering leaving farming but I think [the number] will grow in the next year or so."

Roughly one in five dairy farmers, about 2400, hold less than 25 per cent equity in their farms and these are the ones the banks will move on first, says Janette Walker, an ex-beef farmer who now advises farmers in debt.

Unless payout forecasts improve quickly next year, they will focus on the next 20 to 25 per cent of farmers - those with less than 40 per cent equity.

Walker urges banks to tread carefully.

"For some farmers when they get that letter [that they are in strategic management] it's shocking - the fear of the unknown comes in.

"The overdraft is limited, everything has to be checked off with the bank and in small towns people start talking. It can make it very difficult for families to function."

Grant White, owner-operator of a Whangarei fencing repair company, says: "The suicide thing is kept pretty quiet. Farmers are very honest, down to earth people. They won't walk off their farms - they will get carried off."

Even if global auction prices pick up by Christmas, it could be 18 months before the farmgate price recovers to break-even.

Fonterra says no-one saw the slowdown in Chinese demand coming - but savvy farmers grew edgy a year ago when prices for whole and skim milk powder began to drop.

"Eighteen months ago Fonterra was saying if every blade of grass [in New Zealand] went into milk we still couldn't turn the tap off into China," says Hauraki Plains farmer Jeff Alley.

There were already signs that production in Europe and North America was set to boom, he says.

"A year ago they were forecasting $6 to $7 when it was clear it was going to be under $5.

"We put a lot of faith in these people and the money they are paying themselves. They are not delivering what they are being paid."

The forecasts matter because they are what farmers budget on for the year ahead - most importantly, how much they borrow.

Alley has farmed for 25 years, working his way up from sharemilking to leasing a farm between Paeroa and Thames, where he milks 115 cows.

He is the Federated Farmers regional rep for sharemilkers and fears they will bear the weight of falling stock values. Heifers fetching $1800 last year may halve in price, he says.

"Sharemilkers with all their money in cows are going to be under huge financial pressure.

"As your equity on your cows comes down your risk goes up. Once you fall below the debt to income ratio you have to sell up."

For more than a decade, our economy has floated on milk's rising tide, healthy prices for whole and skim milk powder driving increased, and more intensive, production.

Land in dairying grew 17 per cent to 1.7 million ha in between 2004 and 2014 and the cow herd increased by 29 per cent to just shy of 5 million.

In 2012, dairy exports fetched $13.7 billion, equivalent to 29 per cent of NZ's total exports by value and contributing $5 billion to GDP, the Dairy NZ Economic Survey says.

Critics say the magnitude of the farmgate price drop - from more than $8 to below $4 in two years - raises fundamental questions about Fonterra's management, the reliance on the auction system and Government rural policies.

Federated Farmers Northland dairy chairman Ashley Cullen says most farmers can handle one bad year but they now face at least a second.

"If the payout doesn't come up within two years there's going to be a lot of soul searching about whether they can carry on," says Cullen, who farms near Maungaturoto.

"We're getting no income for two to three months. But the bills still keep coming in for power and the phone and to look after sick cows.

"You can't just shut the gate and not spend any money."