KEY POINTS:
Global turmoil in financial markets has seen a dramatic slide in share price at dairy giant Fonterra - wiping the equivalent of $1.3 billion in value.
The estimated fair value share price for the 2009/10 season was $4.47 - down 19.7 per cent on this season's $5.57 price.
Shareholding farmers buy one share for each kilogram of milksolids obtained from their supply and based on last season's production the drop in share price would equate to a $1.3 billion drop in market capitalisation to $5.3 billion.
Fonterra chairman Henry van der Heyden said the fall reflected the unprecedented turmoil in world equity and financial markets and the difficult global economic outlook.
Key factors that influenced the lower price range were the sharp decline in share values around the world and the related global credit crunch, which restricted access to and increased the cost of capital.
These factors were partly offset by the lower New Zealand dollar, van der Heyden said.
"Although as a co-operative our share price does not reflect daily market fluctuations, we are not immune to the same pressures that have affected listed companies," he said.
Share prices of selected listed companies most comparable with Fonterra had declined by roughly 25 to 35 per cent since last year, he said.
"The global economic and business landscape is extremely volatile and uncertain."
Global dairy prices have slumped as consumer demand has been hurt by last season's high prices, and as global milkflows rise as North American and European farmers boost production.
Milk powder prices fell to their lowest in more than two years at auction earlier this month and prices were unlikely to recover before mid-2009, according to Fonterra.
This season's share price had been cut by 18 per cent, down by $1.22 to $5.57 from $6.79 last year, driving down the total shareholder return - a key business indicator for farmers - by 13.4 per cent.
The announcement will mean a further slump in total shareholder return and if confirmed next year it will be the lowest share since 2003.
It will take Fonterra's 10,724 farmers nearly back to where they started in 2001 when the board set the 2002-2003 fair value share price at $3.85.
The latest estimated price is the mid-point of the range by independent valuer Duff & Phelps, which assumed a full write-off of Fonterra's investment in Chinese dairy company Sanlu after a milk contamination crisis.
Fonterra Shareholders' Council said it expected farmers would be pragmatically resigned to the decrease in share value.
Shareholders' Council chairman Blue Read said the drop was not unexpected and reflected what was happening in economies throughout the world.
"That said, the council will be keeping a close eye on Fonterra's performance to see that the co-operative remains the dairy investment of choice for New Zealand farmers," Read said.
"Farmers use the share price estimate to assist them in making decisions for the future season."