Synlait Milk has slashed its milk price forecast from $5 to $4.40 for this season, along with a corresponding decrease in advance rates to farmers.
Managing director John Penno acknowledged the impact the revised forecast would have on the Mid Canterbury-based company's suppliers, saying that it was shaping up to be a tough year for them and cash flows would be tight.
However, they were aware of larger market volatility and many had been planning accordingly.
Autumn premium payments would help offset some of that volatility, he said.
In December, dairy giant Fonterra cut its farmgate milk price forecast to $4.70, down from its previous forecast of $5.30.
Mr Penno said the oversupply in the global dairy market was unlikely to change in the short term, although prices were expected to strengthen in the medium term as supply and demand rebalanced, he said.
Critical to that rebalancing was how quickly dairy farmers around the world responded to lower milk prices and when the volume of whole milk powder sales returned to previous levels.
While the revised forecast reflected the company's current view of where this season would end up, it was aware conditions could change. It expected to update its forecast towards the end of May.
Dry weather conditions in Canterbury were expected likely to have minimal impact on the company's supply base at this stage, as almost all suppliers had reliable irrigation water access.
Synlait chairman Graeme Milne said the benefit of increased infant formula and nutritional sales at the end of this financial year would largely be offset by increased operating and funding costs.
The majority of the company's higher value products sales were expected to take place in the second half of the financial year, which would be reflected in its full-year results.
Interim results were expected to be ''substantially lower'' than the previous correspond-ing period, as a consequence of that timing difference, Mr Milne said.
