The latest drop in dairy prices is a 'kick in the guts” for New Zealand farmers, says Andrew Hoggard, Federated Farmers Dairy chairperson.

In the latest GlobalDairyTrade auction prices fell 7.3 per cent, meaning prices have dropped more than 48 per cent since February.

A drop in global milk prices means a tough season ahead for farmers.

Andrew says farmers must prepare for an austere 2014/15 season.

'This is the auction result that brings the chickens roosting in the Eastern Ukraine home to us on-farm. Dislocated European Milk has definitely put a sinking lid on global dairy prices.”

In retaliation for sanctions placed on it over its alleged support for pro-Russian separatists fighting Ukraine government forces, Russia has placed a ban on dairy imports from Western countries, including the United States, Australia and the European Union but so far not on New Zealand.

Internationally, milk production has increased and China is pulling back on its imports, all of which impact on the global dairy price and so on New Zealand farmers.

Last week Fonterra reduced its Farm gate Milk Price forecast for the 2014/15 season from $6 to $5.30 per kgMS, well down from last season's record pay-out of $8.50.

Now Westland Milk has announced a $5.40 - $5.80 pay out to its suppliers for the 2014/15 season.

Andrew says unlike most of our international competitors, New Zealand farmers are not subsidised. 'We may not like what prices are doing but we know this is market forces at work and while it often runs in our favour, this season it isn't. We don't have subsidies, we have bankers and unlike subsidies you have to pay them back with interest.

'Any type of farming is a long run thing and you have to take the rough with the smooth.”

The drop in prices should mean North American and European farmers will reduce herd numbers to decrease production which might ultimately benefit New Zealand.

'Federated Farmers' advice to farmers is to watch costs but to keep your bank, farm consultant, accountant and family fully in the loop. Take a no surprises approach to get through this,” Andrew says.

Waikato Federated Farmers president and dairy farmer Chris Lewis says it's not easy for farmers to drastically reduce costs.

'That's hard to do because we have to keep our cows well fed, pay our staff and make sure we meet our consent requirements.”

Chris says despite the decrease, farmers are expected to maintain standards of animal health and look after the environment in order to protect their brand.

'That's something most farmers are proud to do and will continue to do while looking to the long term and a re-bound in the price.”

Farmers wouldn't have been expecting a repeat of last season's high pay out this season and most will have prepared conservative budgets says Scottie McLeod who is Bay of Plenty Provincial Federated Farmers Sharemilker Employers' chairperson.

'We don't have any option but to continue to look after our animals and our land. It's not like farmers can easily pack their bags and head off overseas and most wouldn't want to.”