Units in the Fonterra Shareholders' Fund traded at their lowest point in just under a year after the dairy co-op said it had factored in a $157 million loss provision for the first quarter because higher milk prices had affected its profit margins.

The units, which are a claim on Fonterra's dividend flow, closed at $6.62, down 20c or 2.9 per cent from Friday's finish.

The farmer-owned co-operative said that in the first quarter the relative increase in the price of what it calls its reference commodity products - used to calculate the farmgate milk price - was significantly higher than the increase in the price of non-reference commodity products.

This resulted in a margin squeeze for non-reference commodity products caused by the input costs rising disproportionately to the sales price, and in some product streams the selling price being lower than the input costs.


"This is expected to have a temporary, but significant negative impact on stream returns and, as a result, on NZ Milk Products' (NZMP) earnings," Fonterra said.

The margin squeeze affects key value-added products of cheese and casein - which comprise about 50 to 60 per cent of NZMP's operating earnings - but does not affect margins for wholemilk powder.

Fonterra, in its latest global update, said prices at last week's global dairy auction were on average 1.8 per cent lower than the last trading event with an average winning price of US$4797 a tonne.