Fonterra said it had downwardly revised its forecast payout to farmers for the 2012-13 season due to ongoing strength of the New Zealand dollar.
The revised forecast comprises a lower Fonterra farmgate milk price of $5.25 per kg of milksolids, down from a previous forecast of $5.50, and a lower forecast net profit after tax range of 40-50 cents, down from 45-55 cents per share.
Fonterra announced a revised payout forecast range for 2012-13 of $5.65 - $5.75 before retentions for a fully shared up farmer, 30 cents down on the previous forecast range.
Chairman Sir Henry van der Heyden said most of the downward pressure on the farmgate milk price forecast was due to the continuing strength of the New Zealand dollar.
"We've actually seen improving prices in recent GlobalDairyTrade (GDT) trading events, but the strength of the Kiwi dollar is eroding any gains," van der Heyden said in a statement.
The New Zealand dollar traded today at US81c - well above its historical long term average.
Fonterra is required to consider its Farmgate Milk Price every quarter as a condition of the Dairy Industry Restructuring Act.
Overall, the GDT trade weighted index was up 4.1 per cent over the past four trading events, underpinned by a 7.8 per cent rise on August 15.
However, prices are still low compared to a year ago and the New Zealand dollar remains strong against the US dollar.
Chief executive Theo Spierings said Fonterra's consumer businesses were under pressure due to unfavourable foreign exchange translation effects in many markets, and a difficult retail environment affecting the Australia-New Zealand business.
Spierings said the board had decided to maintain current advance rate payments to farmers.
This would mean no change to farmers' cash flows.
Spierings said there appeared to be some early signs of strengthening dairy prices, partially driven by global weather events.
A serious drought in the United States is pushing up the price of grain, which seems to be affecting dairy production and tightening supply, he said.
Weather conditions in Europe, with extreme wetness in the northern regions of the continent and a heat wave in the south, are also impacting grain production.
The Indian summer monsoon is also off to a slow start, with rainfall about 20 per cent below normal, Spierings said.
These factors were contributing to some of the firming in global dairy prices, but Spierings said any gains would continue to be impacted by the strong New Zealand dollar.
"Our forecasting anticipates some recovery in global dairy prices but we don't know how strong this recovery will be or when it will kick in," he said.
"For this reason, our farmer shareholders should continue to plan cautiously."
Fonterra is the largest processor of milk in the world, producing more than two million tonnes of dairy ingredients, value added dairy ingredients, specialty ingredients and consumer products every year.
- APNZBy Jamie Gray Email Jamie