The co-op's revised payout forecast range is $5.65 - $5.75/kgMS before retentions for a fully shared up farmer. The revised forecast comprises a lower farmgate milk price of $5.25/kgMS, down from $5.50/kgMS and a lower forecast net profit after tax range of 40-50 cents, down from 45-55 cents per share.
Fonterra is required to consider its farmgate milk price every quarter as a condition of the Dairy Industry Restructuring Act (DIRA).
Fonterra chairman Henry van der Heyden says most of the downward pressure on the farmgate milk price forecast was due to the continuing strength of the New Zealand dollar.
"We've actually seen improving prices in recent GlobalDairyTrade (GDT) trading events, but the strength of the Kiwi dollar is eroding any gains," he says.
Overall, the GDT trade weighted index was up 4.1% over the past four events, underpinned by a 7.8% rise on August 15. However, prices are low compared to a year ago and the New Zealand dollar remains strong against the US dollar.
Chief executive Theo Spierings says Fonterra's consumer businesses were under pressure due to unfavourable foreign exchange translation effects in many markets, and a difficult retail environment affecting the Australia-New Zealand business.
"Accordingly, we have lowered our forecast net profit after tax range to 40-50 cents a share."
He says the board had decided to maintain current advance rate payments to farmers. This would mean no change to farmers' cash flows.
Spierings adds there appears to be some early signs of strengthening dairy prices, partially driven by global weather events.
"A serious drought in the United States is pushing up the price of grain, which seems to be affecting dairy production and tightening supply. Weather conditions in Europe, with extreme wetness in the northern regions of the continent and a heat wave in the south, are also impacting grain production. The Indian summer monsoon is also off to a slow start, with rainfall about 20% below normal."
These factors were contributing to some of the firming in global dairy prices, however any gains would continue to be impacted by the strong New Zealand dollar.
"Our forecasting anticipates some recovery in global dairy prices but we don't know how strong this recovery will be or when it will kick in. For this reason, our farmer shareholders should continue to plan cautiously."
