Landcorp blames a sharp fall in milk prices, as well as the effects of last year's drought and increased farm costs for a half year operating loss of $10.5 million.
The loss for the six months to the end of December, compares with a profit of $9 million for the corresponding period in 2007.
Chief executive Chris Kelly says all dairy producers are suffering a drop of 25% - 50% in milk payouts this season.
Landcorp expects an improvement in the second half of the financial year, but Mr Kelly does not expect it to achieve an earlier budgetted target of an operating profit of $15 million for the full year.
Landcorp is the biggest farmer in New Zealand. It is State-owned.