The fact that it is not a surprise does not make it any easier for New Zealand dairy farmers. Fonterra has cut its forecast milk price for the current season from NZ $4.60/kg milk solids (19c/l) to $4.15/kg (17c/l).

The continuous price fall in dairy commodities at the latest Global Dairy Trade (GDT) auctions has made the forecast cut inevitable.

Matthew Newman, senior economist with Dairy NZ, said the price revision forecast takes $800m from farmer income in New Zealand. This would equate to an average loss of $67,000 for a farmer producing 150,000kg of milk solids.

Average

The average breakeven milk price in NZ is around $5.40/kg, so even if the co-op pays a $0.35/kg dividend, farmers are losing almost $1 for every kilo of milk solids they produce this season.

The other major processors, Westland and Open Country, have already cut their milk price forecasts in line with Fonterra.

Fonterra chair John Wilson said: “There is still an imbalance between supply and demand, which continues to put pressure on global milk prices.”

Nathan Penny, economist with ASB, which is owned by Bank of Australia, said a low New Zealand dollar would not assist farmers this season, but was more likely to do so next season. For that reason, the bank was sticking with a relatively optimistic price forecast of $6.50/kg (26.5c/l) for the 2016/17 season.