Fonterra has also reduced its forecast for the current season, which ends on Sunday, by 10c to $4.40/ kg. This is well below the season's opening price of $7.

Fonterra Chairman John Wilson said the revised forecast reflected the difficult global market.

“World markets are over-supplied with dairy commodities after farmers globally increased production in response to the very good prices paid 12-18 months ago. This supply imbalance has heightened due to continuing good growing conditions in most dairy producing regions.

“This is a tough season and we will continue to keep our farmers informed as the season draws to a close given the current volatility,” said Wilson.

However, Wilson said he expects to see a recovery in prices.

“We can expect prices to recover going forward, and to see a rebalancing of supply and demand over the season. However it is more difficult this early in the season to determine exactly when this recovery will lead to a sustained price improvement,” he said.

The forecast is below the $5.60-$6 forecast payout announced by Westland, New Zealand’s second largest dairy co-op.