Embattled dairy processor Murray Goulburn will close three factories as the company confronts a falling milk supply.

Key points: Murray Goulburn will close three factories. Two in Victoria and one in Tasmania

Murray Goulburn will close three factories. Two in Victoria and one in Tasmania The company expects 360 staff will lose their jobs in the closures

The company expects 360 staff will lose their jobs in the closures Axing the controversial farmer repayment program and repaying contributions made

Axing the controversial farmer repayment program and repaying contributions made Blames "weaker trading conditions" for lowering its forecasted milk price

Australia's largest dairy processor will close manufacturing facilities in Edith Creek in northern Tasmania, and Rochester and Kiewa in northern Victoria.

The company says it expects 360 people will lose their jobs in the closures.

Speculation had been rife in recent months that the closures were imminent.

In February, the company posted a $31.9 million loss for the first six months of the financial year.

Murray Goulburn attributed the loss to a 20.6 per cent slump in milk supplies and a 14.8 per cent drop in revenue.

The factory closures will be staged, starting with Edith Creek in the final quarter of this year.

Rochester will follow in early next year and Kiewa in the second half of 2018.

Campaspe Shire councillor Leigh Wilson said the closure would be a huge blow for the Rochester community.

"I'm absolutely gutted this morning.

"It is very sad news. In many ways most people around Rochester were expecting this to happen," he said.

"My hopes were with probably a downsizing, at best, a downsizing and some level of operation into the future until things improve."

Indigo Shire mayor Jenny O'Connor said Murray Goulburn's board gave no indication the Kiewa plant would close during a meeting three weeks ago.

She said the announcement of the closure had left the community devastated.

"We're just absolutely horrified to think of the impact of this on Kiewa-Tangambalanga. It is terrible news."

Attempts to salvage plummeting milk supplies

Murray Goulburn has also announced it would end its controversial milk supply support package (MSSP).

It was announced as a way for farmers to repay what they owed when the company suddenly and retrospectively cut prices last year.

The company last year suspended MSSP repayments when it became clear it was responsible for farmers leaving the company.

"MG will also make a payment to continuing and retired suppliers who made MSSP contributions between July and September 2016, and to any suppliers who recommence supplying milk to MG by July 31, 2017," a company statement reads.

"MG is taking this step in recognition of the unintended impact of the MSSP."

The axing of the so-called clawback program will cost Murray Goulburn $148 million.

United Dairyfarmers Victoria vice president and West Gippsland dairy farmer John Versteden said the "forgiveness" of the clawback payments would relieve financial pressure on suppliers.

He said it would also be a "huge psychological weight off shoulders".

"It's a very honourable thing to do that," Mr Versteden said.

"It does increase the debt level, but there's other companies that have done the same thing last year; they've worn the step down in milk price."

Pledge to honour price despite weak outlook

In its statement, MG attributed "weaker trading conditions" for revising its forecast milk price.

The company reduced its forecast price from $4.70 per kilogram of milk solids (kgms) to $4.60kgms but has vowed to honour the $4.95kgms it offered farmers earlier in the season.

Murray Goulburn will suspend all dividend payments to its Australian Stock Exchange investors and shareholders and will scrap plans for future investments.

Shares in the company fell around 12 per cent in early trade in response to the announcement.

The announcement comes days after the Australian Competition and Consumer Commission announced it would take Murray Goulburn, former managing director Gary Helou and former chief financial officer Brad Hingle to the Federal Court, alleging unconscionable and misleading conduct.

Deputy Prime Minister Barnaby Joyce said Murray Goulburn's axing of the MSSP was long overdue.

"What it puts up in big flashing lights is that the previous management of Murray Goulburn did some pretty ordinary things, and the ramifications of it have been widespread," he said.

"I'm happy that farmers are now getting more money."