Fonterra has cut its forecast farmgate milk price citing weaker global dairy prices and increased production and skim milk stockpiles in Europe.
The co-operative is slashing its FMP from $6.75 to $6.40 per kilogram of milksolids, meaning an "average" dairy farmer will lose about $50,000 of income.
Fonterra paid its farmer suppliers $6.15/kgMS for the 2016-17 season and $3.90/kgMS for the 2015-16 season.
Chairman John Wilson says the lower forecast milk price reflects a prudent approach to ongoing volatility in the global dairy market.
The downward pressure on global prices was being partly offset by the lower New Zealand-United States dollar exchange rate, Mr Wilson said. The advance rate would be held through to the payments in May.
"I don't think farmers need to be too concerned at the moment.we're probably still looking at a milk price over NZ$6.00 so most farmers should still be making a profit this season at that kind of level", Castleton said.
Fonterra reduced its milk collection forecast by 1% to 1525 million kg/MS - the same volume as a year ago.
ASB rural economist Nathan Penny said that there was typically a lag between and that price movements at dairy auctions were far more pronounced than those in retail prices.
That reflected "ongoing challenging weather conditions".
Shares in Fonterra closed flat yesterday at $5.80.
Globally-traded butter prices have fallen 25 per cent since September - but supermarket shoppers shouldn't expect to bank all of that benefit. Despite that, its sales volumes fell 20 per cent while its gross margin dropped.
"This has challenged our ingredients business where we had lower volumes to sell", he said.
The lower gross margin was in line with the second half of past year. The consumer and food service business continued with strong sales in its key markets across both Greater China and Asia, reporting just a 3% fall to 1.3 billion liquid milk equivalents in total volume compared with the record levels at the same time past year, Mr Spierings said.
However, Mr Spierings remained positive.
An arbitration tribunal had ordered Fonterra to pay Danone a smaller than expected 105 million euros ($124.05 million) over a contamination scare.