Murray Goulburn to pay less for milk

Dairy co-operative Murray Goulburn will pay its farmers less than previously forecast as wet weather and defections to other producers dents its supply of milk.

Heavy rain has created another headache for Australia's biggest dairy producer and its 2,200 farmers.

Murray Goulburn has cut its forecast average farmgate milk price for 2016/17, the amount it pays farmers for their products, and downgraded its annual profit expectations, because its milk production is set to fall by about 20 per cent in the year.

Murray Goulburn now expects to pay farmers $4.70 per kilogram of milk solids over the full year, down from the $4.88 it forecast just five weeks ago.

Widespread flooding in south east Australia has impacted dairy herds and pastures, particularly in Victoria's north and west, which is set to cause a fall in annual production of up to 12 per cent.

"When you lose pasture and crops, your cows aren't in as good as condition as they should be, and if they don't hit their peak, that impact carries through for the whole year," Murray Goulburn interim chief executive David Mallinson said.

The dairy producer has also suspended repayments in its unpopular loan package to farmers - known as the Milk Supply Support Package - until June 2017.

The package was introduced in April after Murray Goulburn made retrospective cuts to farmgate milk price for the 2015/2016 financial year.

It has contributed to a number of farmers retiring or leaving the co-operative for other producers, which Murray Goulburn expects will account for close to half of the fall in its annual milk production.

Mr Mallinson acknowledged that farmer confidence in Murray Goulburn is low.

"This (the cut) won't help that. But the worst thing I could do is not be forthcoming," he told AAP.

The suspension of repayments required from dairy farmers will help them, Mr Mallinson said.

"What they were expecting to repay this year will now go straight to their milk cheque," he said.

Murray Goulburn said its net profit in 2016/17 will be lower than its previous forecast of $42 million because of its weaker milk intake.

Units in Murray Goulburn's listed entity, the MG Unit Trust, were down two cents at $1.17 at 1325 AEDT.