Fonterra says it has cut its farmgate milk price forecast for 2014/15 to $4.70 per kg of milk solids, down from previous forecast of $5.30 a kg.
The giant dairy co-operative said that, when combined with the previously announced estimated dividend range of 25-35 cents per share, this amounted to a forecast cash payout of $4.95 - $5.05 for the current season. The board will revise its dividend outlook when the co-op announces its interim result next year.
Chairman John Wilson said the revision would put pressure on farm budgets.
"There is still considerable volatility in global dairy markets," Wilson said in a statement.
"Today's revised forecast reflects the board and management's best estimates at this time," he said.
"Given the uncertainty we are advising farmers to continue to be cautious with budgeting and we will update them as the season progresses."
Prices on the GlobalDairyTrade platform have fallen steeply since February and economists have long been predicting a cut in the farmgate milk price forecast.
Market expectations were for the price to drop to around the $4.70 to $4.80 kg range, although some forecasts were much lower.
Dairy product prices slipped to a fresh five-year low at last week's fortnightly auction, driven by a drop in whole milk powder.
The GDT average winning price slid 1.1 per cent to US$2,513, the lowest level since August 2009, and down from US$2,561 in the previous auction in mid-November.
Other dairy companies have also been cutting their milk price forecasts.
North Island dairy company Open Country Dairy has notified suppliers of further reductions in its milk price forecasts. It is now forecasting a total average milk price for the 2014/15 season of $4.50-$4.80 kg, down from a previous forecast a month earlier of $4.70-$4.80 kg.
Westland Milk Products, the Hokitika-based dairy co-operative, has cut its forecast milk payout for the second time in four months, to a range of $5 to $5.40 per kilogram of milk solids, from a previous range of $5.40 and $5.80/kg.
