"Over the weekend we tried one last time to get to a solution," said Feds dairy chairperson Willy Leferink.
"The shame is that this hairy mutation is so rare, a farmer is more likely to win Lotto's first division than to encounter it again."
Leferink said he feared the matter was heading towards the Commerce Commission and possibly the courts.
The Commerce Commission said it has so far received one complaint against LIC and was in the process of deciding whether to investigate the case.
LIC needs to "get on the front foot" and actively build its customer relations, Leferink said.
"We hoped LIC would have run their commercial ruler over this issue, bearing in mind how low the odds are of a repeat.
"A dose of pragmatism would have avoided much public acrimony."
LIC has offered affected farmers free tissue sampling and DNA testing to identify if calves have the defect but has refused to pay compensation. The replacement cost of each animal would be around $1300.
The defect occurred naturally and spontaneously and was not discovered until after the inseminations were carried out, LIC said on its website.
"Genetic defects are a fact of life - in any animal species (including humans).
"No genetics company in the world has been known to compensate in similar circumstances."
LIC would also be crediting the cost of all semen and inseminations from Matrix, regardless of whether farmers reared affected calves or not.
Taranaki Feds dairy chairperson Derek Gibson said the 18 affected farmers in his region were not happy.
"They're pretty disillusioned to be honest and the compensation has been put out without any consultation and they're pretty peeved off.
"It's not enough and there's been no consultation at all with individual members."
Gibson said the Taranaki group would be looking to align itself with Waikato members.
Waikato farmer Roger Blunt, who had about six to eight heifers affected, said he and other local farmers had been seeking legal advice.
"We've had various opinions and they all say we stand a pretty strong chance," he said.
"I'd say there are an awful lot of people out there who are disappointed with LIC, from Canterbury through to Whangarei."
Blunt said his affected calves mainly appeared "rough on the coat" and "stood out from the rest".
"This problem is big and I'm not just being emotive. The ramifications are it's spread right through the industry."
The majority of LIC's board members are farmers, and some board members themselves had affected animals.
LIC said on its website that it was important to "always do what's right for the wider shareholder base".
The company has since culled Matrix and advised farmers to also cull their affected animals. A number of farmers have chosen to grow their animals out for beef.
Leferink said affected farmers could "club together" in order to pursue some form of remedy.
"As this could now become a commercial dispute, Federated Farmers has to step back until this these processes are complete.
"Federated Farmers is however ready to mediate for a solution that works for those affected by this mutation and for LIC's wider shareholding base."
