The latest price cut from a major dairy producer could force some Australian farmers out of the industry as they struggle to break even.
Fonterra Australia has joined Murray Goulburn and Bega Cheese in lowering their farmgate milk prices for the 2016/17 financial year, continuing the trend of recent months.
Producers have been cutting prices offered to farmers amid a global oversupply and low prices for dairy commodities.
Fonterra will offer an opening farmgate milk price of $4.75 per kilogram of milk solids for the 2016/17 season, and expects that to rise to $5.00 later in the year.
The company was paying $5.60 per kilogram before it made a cut in May to $5.00 for the remainder of the 2015/16 financial year.
United Dairyfarmers of Victoria president Adam Jenkins said Fonterra's opening price is below the cost of production on many dairy farms.
"That is a concern. It has come off a long way, and after two very dry seasons, people are particularly nervous about what that means for their business," he said.
Farmers would be profitable at a price of over $5.50, he said, and would be able to reinvest in their business and grow.
A price of around $5.00 may meet the cost of production, but there was little room to manoeuvre between $4.50 and $5.00, Mr Jenkins said.
The stress generated by plunging milk prices may prompt some older farmers to bring forward their retirement, he added, and could cause a crisis of confidence among younger farmers entering the industry.
Fonterra senior executive Judith Swales said the company's opening price for 2016/17 is responsible, and reflects current market conditions.
"Our farmgate milk price in Australia is also impacted by global dairy markets given our mix of domestic and export sales," Ms Swales said.
"While we are seeing an imbalance between global milk supply and demand, there are signs in key milk producing areas of a slowdown in production and increased imports into key markets such as China, Asia and Latin America.
"This supports our view of a recovery in global prices as we move through the season."
Fonterra's forecast price depends on the Australian dollar staying at about 74 US cents.
Murray Goulburn this week announced an opening farmgate milk price of just $4.31, rising to $4.80 over 2016/17.
In April, Murray Goulburn slashed the farmgate milk price for the remainder of the 2015/16 season to between $4.75 and $5.00, from $5.60.
Last week, dairy producer Bega Cheese announced an opening farmgate milk price of $5.00.
Mr Jenkins said farmers need easier access to concessional loans.
One bright spot for farmers is recent good rains, which should enable them to grow more fodder and ease some pressure, he said.
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