Fonterra has cut its forecast milk payout for the current season by 25 cents to $6.75 a kilo of milk solids because of rising global supply.
Photo: RNZ / Rebekah Parsons-King
The co-operative said production in North America and Europe has been rising while demand in Asia and the Middle East has been slowing.
Dairy prices in the twice monthly global auctions have hit their lowest level in eight months.
Fonterra chief executive Miles Hurrell said the recent weakening of the New Zealand dollar will partly offset the weaker prices, but farmers need to have a realistic view of conditions.
"It's still very early in the season and a lot can change over the coming months. A drop in the new season Milk Price forecast will be frustrating to our farmers, but it's important we give them the facts so they can make informed decisions in their farming businesses," he said.
Mr Hurrell took over as chief executive from Theo Spierings just two weeks ago.
Fonterra chairman John Monaghan said in a statement today: "Over the past quarter, we have seen increased milk supply out of markets including Europe, the US and Argentina. These regions have a big influence on the supply and demand balance and therefore global prices."