Murray Goulburn (MG) managing director Gary Helou was outlining the circumstances facing the industry in a letter to shareholders on Wednesday.

Mr Helou said MG was maintaining its opening price and full-year forecast at $6 per kilogram milk solids for now, but warned the forecast was subject to changes in global dairy prices and the Australian dollar.

He said suppliers would be updated on the outlook every month while trading circumstances remained so difficult.

“The board will continue to closely monitor the situation and consideration of any reduction in the base price would be a last resort if markets continue to decline,” Mr Helou said.

Farm-gate milk prices are directly affected by global dairy commodity prices and the Australian-US dollar exchange rate.

Global prices have tumbled this year, negatively influencing returns, while the recent fall in the dollar from about 94 cents to below 89 cents has helped to counter this effect to a small extent.

The Russian sanctions on dairy produce from Australia, the European Union, US and Canada and Norway are having a heavy impact on global prices. Without the Russian market, vast quantities of product are finding their way into the global auction systems, pushing down prices.

The sanctions have further depressed prices that were already declining due to the biggest buyer, China, largely staying out of the market since February.

Tactical stockpiling of product has given China a large inventory, the extent of which is unknown. Analysts expected China to be back in the buyer pool months ago, but it has not fully returned.

“Over the next few weeks we will continue to assess the impact of the Russian trade ban and further assess China’s re-entry into the market. We will provide another update to you in one month’s time,” Mr Helou said.

He urged caution with farm budgeting until market directions become clearer.

Mr Helou’s statement came on the same day that Fonterra New Zealand reduced the farm-gate price paid to its Kiwi suppliers from NZ$6 to NZ$5.30 per kilogram milk solids. 

Fonterra’s Australian division said a decision will be made with its September review.

Meanwhile, south-west dairy farmers are increasingly nervous about the continued lack of rain. August was unusually dry and the region has largely missed out through September.

With only showers forecast for the remainder of the month, this September is shaping up to be one of the driest ever.

Warrnambool’s weather station has so far recorded 34mm. The lowest ever recorded at the present weather station site was 39mm in September 1999. The average is 71mm.