The forecast reduction to $6.40 meant about $50,000 average lower income for its farmer suppliers or $530 million for milk payments overall.
Directors did sweeten the pill by lifting the advance payment by 10c/kg for the remaining six months of the season.
It came a week after the board was forced to take 10c out of the earnings guidance when litigant Danone was awarded $183m for recall costs following the 2013 whey protein botulism scare.
The twin downgrades came as dairy farmers faced a long, hot summer after a wet spring, such that Fonterra now expected no milk production growth in 2017-18.
Glass-half-full farmers found some sustenance in Fonterra’s package of announcements and the total available for payout this season at $6.75 to $6.85/kg MS remained the fourth-best in history.
The cashflow boost would be welcomed by farmers and was the most appropriate thing the co-operative could do for them, chairman John Wilson said.
Everyone in the company was focused on driving up value, optimising production and cutting costs to deliver the official forecasts and possibly recover the earnings hit.
A day before Fonterra’s release Global Dairy Trade auction prices found some stability after two months of consecutive losses totalling more than 10%.
The GDT index rose 0.4% and whole milk powder prices rose 1.7%. Oceania skim milk powder prices were up 4.7%.
On the downside butter fell another 11% and was now 24% lower than its September peak and back into relativity with all other dairy commodities.
Wilson said it was not possible to say if the peak of prices had passed in this dairy cycle, that supply and demand worldwide were still balanced and that WMP was under-priced.
“Now that NZ milk production is just steady, no more volume of WMP can be expected so prices could start increasing again,” he said.
“That SMP stockpile in Europe is being talked about more, which concerns us, and Canada has shown some destabilising behaviour by dumping SMP on world markets.
“However, demand remains strong in China, southeast Asia, and Latin America where our main markets are.
“We believe $6.40/kg is a prudent forecast at this stage and it is a good one historically but we never like having to reduce the milk price.”
Federated Farmers Waikato dairy chairwoman Jacqui Hahn said the reduction in milk price forecast had been expected and anything over $6 was still good for farmers.
However, the damages awarded to Danone were disappointing and sent a bad message to other food companies that were obliged to do the right thing by declaring a possible risk.
Many Waikato farmers were now short of grass and the 10c lift in advance payments would help put money in the bank.
That was echoed by Taranaki dairy leader Janet Schultz who said many farmers were only clawing their way out of extra expenditure during the wet winter.
She was not surprised by the payout fall because GDT prices had fallen recently but it would hit hard when Taranaki farms were getting so dry, many having gone on to 16-hour or once-a-day milking.
ASB senior rural economist Nathan Penny said the full benefit of the NZ dollar depreciation of about 5% or 4c/kg against the United States dollar would not be felt until next year because Fonterra hedged most of its sales revenue.
The dry weather had the potential to put upwards pressure on dairy prices and therefore Penny would stick by his seasonal forecast of $6.50.
The AgriHQ milk price forecast moved down only one cent after the GDT to sit at $6.18.
WMP prices rose in the GDT event and futures contract prices were also stronger than two weeks ago.
The September 2018 milk price futures contract settled at $6.35 after Fonterra’s announcement while the 2019 contract lost two cents to be at $5.98.
