Fonterra Co-operative today reduced its forecast farmgate milk price for the 2014/15 season from $6.00 to $5.30 per kgMS.

New Zealand’s dairy giant says the lower forecast farmgate milk price reflected continuing volatility, with the GlobalDairyTrade price index declining 6% in the past two trading events.

“The market is currently influenced by strong milk production globally, the impact of Russia’s ban on the importation of dairy products, and the levels of inventory in China. Some relief has been provided by exchange rates, with the NZ dollar recently showing some signs of falling against the US dollar,” said Chairman Mark Wilson.

“Under the current market conditions, there is further downside risk. However, the forecast reflects expectations that prices will increase in the medium term.”

Fonterra also announced its annual results today it said “normalised” earnings before interest and tax came to $503 million for the year to July, down 50% on the previous year’s, as high milk prices put pressure on the cooperative’s profit margins.

The co-operative also outlined that the higher cost of goods sold, along with higher interest and taxation, saw Fonterra’s net profit after tax fall by 76% to $179 million.

Fonterra said while high milk prices, while a boon for farmers, are an added cost to some of Fonterra’s manufacturing, and dividend-paying, operations.

“Constrained margins in our foodservice and consumer businesses and on non-milk powder products were the knock-on effect, contributing to a 27% rise to $19.8 billion in the cost of goods sold,” according to Chief Executive Theo Spierings.