Spierings says it's a question of who can adapt best to volatility and lower prices.

Fonterra chief executive Theo Spierings said more pain lies ahead for farmers as dairy prices continue to weaken and as oil prices plummet.

Demand is sluggish amid slowing growth and equity market turmoil in China, Spierings told international business news agency Bloomberg.

Consumption by oil-dependent countries may also be hurt after crude prices plunged below $30 a barrel this month, the lowest since 2003, he said.

Increased milk supply and lacklustre demand pushed dairy prices to a 12-year low in August before stabilising after Fonterra reduced the amount it sells at auctions.

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With Canadian processor Saputo predicting prices will remain depressed, Fonterra says higher-cost producers will continue to suffer.

"There's definitely going to be pain, more pain, and it's a question of which supply or which country's farmers can adapt best to volatility and lower prices," Spierings said.

In New Zealand, "we can breathe in and out relatively easy although there's pain", he said.

"Farmers in countries with high-cost prices are going to suffer."

While the rout in Chinese equity markets has dented consumer confidence, Spierings is banking on China's prospects in the longer term as more babies are born and an expanding middle class boosts demand. Volume growth there may accelerate to as much as 5 per cent from the current rate of zero to 1 per cent, he has estimated, without providing a time-frame.

Chinese policy makers are seeking to steer the world's second-largest economy toward consumption-led growth, with old rust-belt industries from steel to cement in decline.

China's 6.9 per cent economic expansion last year was the slowest since 1990 and the Shanghai Composite Index has dropped 16 per cent this year amid concerns about the economic outlook.

"I'm much more focused on recovery of demand," said Spierings, 52. "Whether it's China, whether it's Iran after the lift in sanctions, if you see uplift in importing regions then prices can pick up really quickly."

Should GlobalDairyTrade (GDT) prices extend losses, Fonterra may cut how much it offers at the auctions.

"GDT is just a sales channel," he said. "Rather than amending that forecast, we'd better take actions as management, as we're paid to do, to shift volumes to another channel and create supply-demand tension in GDT."

The average price for whole milk powder was $2188 a tonne. Fonterra's forecast farmgate milk price of $4.60 assumes whole milk powder will reach $3000 a tonne in the first half.

Pressure is mounting on Fonterra to cut its farmgate milk price forecast.

Under its enabling legislation, Fonterra is obliged to update its milk price forecast by March, but the co-op may act sooner if GDT prices continue to decline.

Bank economists now expect a farmgate milk price to be about the low $4 mark, against Fonterra's existing forecast of $4.60 a kg.

Fonterra expects New Zealand production to fall by up to 6 per cent this season, but data to date shows only a modest decline.

According to Dairy Companies of NZ data, New Zealand milk production fell 1.2 per cent last month compared with December a year earlier, and by 2.6 per cent in the season to date. National production came to 1.10 billion kg of milksolids in the season to the end of December, down from 1.13 billion in the same period a year earlier. For calendar 2015, production came to 1.86 billion kg, down 1.2 per cent from 2014.

Contrary to expectations that the El Nino weather pattern would affect farmers, growing conditions since the new year have been favourable for much of country, aside from the south of the South Island.

Volatile commodities markets are making their presence felt in farm prices. Compared with December 2014, the Real Estate Institute of NZ's Farm Farm Index rose by 11.4 per cent in the three months to December, against the three months to November. Compared with December 2014, the index has fallen by 10.8 per cent.