Fonterra has cut its forecast milk payout to suppliers by up to 50 cents because of oversupply on world markets.
Fonterra forecasting a payout between $6.25 and $6.50 a kilo of milk solids. Photo: rnz
The co-operative is forecasting a payout between $6.25 and $6.50 a kilo of milk solids from the previous $6.75.
Chief executive Miles Hurrell said the cut reflected world milk supply outstripping demand.
"We are still seeing strong production coming from Europe, US and Argentina... Here in New Zealand, the season has got off to a positive start, mainly thanks to good weather and early calving in the South Island."
He said Fonterra now expected local milk production to rise by more than 1.5 percent to 1.55 million kilos of milk solids.
The cut is the second in as many months and follows a steady decline in prices for most of the year in the twice-monthly dairy auctions, where the average price has fallen to its lowest level in two years.
"Demand for WMP [whole milk powder], in particular, continues to grow in China, and it remains strong across South-East Asia, but it simply isn't matching current levels of supply," Mr Hurrell said.
He said Fonterra wanted to give farmers early notice of the pressures so they could plan accordingly.
"The final price could be outside this range as we are still early in the season and up against considerable volatility. We therefore recommend farmers budget with ongoing caution," Mr Hurrell said.