Fonterra has cut its milk price forecast by 5c to $6.70 per kg and says it won't pay farmers and investors a dividend for the second half of the 2018 financial year, due to a poorer-than-expected financial performance.

"Our forecast performance was not where we expected it would be," said new chairman John Monaghan.

The co-op had previously forecast a full-year dividend of 15c-20c.

Fonterra said that its financial performance would be at or slightly below its previously announced 25-30 cents per share earnings guidance range.

Monaghan said the board has made these decisions in the best long-term interests of its farmer shareholders and unitholders.

"It is important for our co-operative to have a strong balance sheet and, as we indicated in May, the higher milk price, which is good for our farmers, has put pressure on Fonterra's earnings, and therefore our balance sheet in a year which was already challenging due to the payment to Danone and the impairment of the Co-operative's Beingmate investment," he said in a statement.

"You never want to have to reduce the Milk Price at the season's end, but it is the right thing to do and $6.70 remains a strong milk price," he said.

Monaghan said he wanted to be "upfront" with farmers and unitholders that to achieve this the board has taken the step to depart from the amount calculated under the Farmgate Milk Price Manual. This is permitted within Fonterra's Constitution.

"During the process of closing our books for the financial year end, the need for these actions has become clear," he said in a statement.

"While the numbers are not finalised, our margins were less than we forecasted right across our global Ingredients and Consumer and Foodservice businesses."

In May, Fonterra increased its 2017/18 forecast Farmgate Milk Price by 20 cents to $6.75 per kg but warned that it would put pressure on Fonterra's earnings.

The Co-operative's full year results will be announced on 13 September 2018.