Market insiders regard Westland as a "bellwether" for Fonterra, so today's move will add weight to the view that Fonterra will also have to lower its payout forecast for 2012-13.
Dairy product prices showed signs of stabilising at Thursday's fortnightly dairy auction, but the strength of the New Zealand dollar is clouding the outlook for Fonterra's payout.
See recent dairy auction prices here:
Fonterra, which collects around 89 per cent of New Zealand's milk production, announced a payout for 2012-13 of $5.95 to $6.05 a kg.
Quin said the reduced payout by Westland would have an impact on rural communities, with farmers bearing the brunt, but he said the cooperative was in good shape.
"This situation highlights the importance of our strategy of moving significant milk volumes away from the commodity markets into specialist nutritional products, which will give us better returns and greater stability," Quin said.
The nutritional products market is growing and we are taking advantage of that to the ultimate benefit of shareholders, he said.
Quin says the colostrum market was in the doldrums due to an oversupply from the United States and changes in food regulations in China.
Most of Westland's colostrum is sold to China into the child nutrition segment of the market.
But Chinese authorities had recently regulated against the addition of colostrum to child nutritional products, which had led to a significant reduction in demand.
"As a result there needs to be a reduction in the collection period this season and there will also be reduced payments for the colostrum we do collect," he said.
Quin said the colostrum the market was likely to remain volatile "for the foreseeable future".
Colostrum - a form of milk produced by the mammary glands of mammals - contains antibodies to protect the newborn against disease.
Quin said there were encouraging signs that dairy prices overall would firm, with the Thursday's GDT price index increasing by 3.5 per cent over the previous sale.
