The dual-listed company made the announcement on the Australian stock exchange on Monday. The New Zealand market was closed for the King's Birthday public holiday.
It has nearly 300 suppliers of special A2 milk and any supplier exits would take effect in 2026.
Synlait said the cessation to supply notices from a "significant majority" were not a surprise, given its current performance.
"Farmer suppliers have signalled they want to see Synlait's balance sheet deleveraged, so advanced rates can be lifted further, and submitting a cessation notice provides an option, rather than a clear intention to sign with other processors," it said in a statement.
It reported a $96 million half year loss as it struggled to repay a $130m loan and finalise a strategy to turn around the company.
It's signalled full year earnings will be at the lower end of its $45m-$60m range, before expected one-off charges.
Catalogue of problems
Synlait has been hit by high costs, falling sales, the need to repay debt, a row with its major customer A2 Milk, as well as being unable to sell its consumer dairy products business Dairyworks, which it has valued at $120m.
In April this year, the Canterbury-based company put forward various options to rescue its financial position, including possibly selling its North Island plants and selling new shares.
At the half year result its net debt level was $559m, and its bankers agreed that the $130m loan repayment due late March could be delayed to mid-July.
Major shareholder China's Bright Dairy has offered to lend the money, subject to shareholder approval.
"We are actively working with Bright Dairy on the remaining work relating to this shareholder loan and a future equity raise. The shareholder loan, and the future equity raise, will enable Synlait to reduce its debt to a sustainable level," Synlait chair George Adams said.
However, the company will also break some of its bank finance agreements, which it's asked its banks to give it a waiver for.
"This reflects the timing of Synlait's deleveraging and further weakening in its financial performance."
Synlait's full year operating earnings were now expected to be at the lower end of its $45m-$60m range, before likely one-off charges.
In April, investment house Forsyth Barr analysts said Synlait's outlook was "very challenged" given that it had to find about $300m to repay debt by the end of the end of the year.
A further risk hanging over it is the dispute with its largest customer and second biggest shareholder A2 Milk, for whom Synlait makes infant formula.
Synlait has the advantage of holding the necessary China state manufacturing licence for the product.
Over the past year Synlait's share price has plunged about 80 percent.
