Australian dairy firm Warrnambool Cheese and Butter Factory has downgraded its full-year profit forecast, citing falling prices for dairy commodities.

WCB said its full-year net profit after tax would be 20-30% down on the A$18.5m (US$18.4m) recorded last year. When the company delivered its half-year results in February, WCB had forecast profits in-line with last year’s levels.

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In its profit warning, WCB said the price of internationally traded dairy commodities had slumped in the second half of its financial year. Skim milk powder prices had dropped by 22% since January, it noted.

The company revealed buyers were responding to declining prices by taking out shorter supply contracts, meaning it will have higher than anticipated inventory levels at the end of the year.

WCB suggested declining prices were the consequence of increased milk production and cited data from industry body Dairy Australia that found production had increased by almost 3% in 2012.

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“The current weakness in international markets has been caused by an increased supply of products,” the company said on Tuesday (5 June).

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Nevertheless, the group said demand “remains strong” and, despite the increased volume of products on the market, goods “are clearing at reduced prices”.

“While this anticipated change in WBC’s performance is disappointing, the impact on NPAT has been, and is expected to continue to be, mitigated by WBC’s strategy to pursue a more specialised higher-value product mix and to diversify its revenue streams into higher domestic sales and consumer products.”