International ratings agency, Standard & Poor's, says Fonterra's high debt is part of the reason why it has been put on credit watch.
As well as a high level of debt, Standard & Poor's is also citing a weakening market for its move which has negative implications for Fonterra's current debt rating.
A Standard & Poor's credit analyst, Brenda Wardlaw, said it would make a decision on the rating after looking at the co-operative's full year results.
She said the move followed the dairy giant's lowering of its forecast milk price last week, which was slashed to $3.85.
Agribusiness commentator Keith Woodford said being placed on negative credit watch was not a disaster for Fonterra but would make it more expensive to borrow money.
"It's symptomatic that things aren't very good at Fonterra at the moment, but it's not a crisis. at this stage it's just a warning."
Fonterra responded to the agency's announcement and said it had taken proactive and positive steps to maintain its financial strength.