The Fonterra board was due to meet today or tomorrow when a further cut in the payout was likely to be confirmed.
Whole milk powder prices fell another 7.1% last week, taking the year-to-date fall to a ''whopping'' 54.8%, he said.
''We expect the current $5.30 per kilogram of milksolids payout to be downgraded to about $4.70 to $4.80 and this is likely to put further downward pressure on the currency.''
Some commentators were forecasting Fonterra to lower even further its payout forecast for the season, perhaps down to $3.50, wiping more than $6 billion from the economy.
However, Mr Timms said Fonterra Shareholder Fund (FSF) shareholders, including farmers, would benefit from the lower payout price.
Fonterra's profit and dividends would be higher, the lower the input price of the payout.
The difficulty for farmers was the payout was in cash whereas the increase in share price and dividends was not, he said.
The two important aspects of commodity prices for Fonterra were first the level, which was generally passed through to farmers through the farmgate milk price and secondly, the relative mix between reference products.
The third important element of commodity prices for Fonterra was adjusting to higher volatility, especially sharp upward movements for the branded operations, such as those experienced in the first half of the year, Mr Timms said.
Before 2007, global dairy commodity prices changed at a much slower rate, as seen by whole milk prices not moving by more than 10% in any month. Post-2007, the GlobalDairyTrade price index moved by more than 10% in a month on 22 occasions.
Whole milk powder sold at $US2229 ($NZ2910) a tonne in last week's GlobalDairyTrade auction and would need to surge 57% by March to reach the $US3500 a tonne level on which Fonterra chief executive Theo Spierings previously said the current forecast payout of $5.30 a kilogram of milk solids was predicated.
The chances of that sort of recovery were slipping away. NZX Whole Milk Powder Futures contracts had tumbled in the past three weeks, with contracts scheduled to expire in April to July 2015 dropping more than nearer-dated contracts.
For example, May 2015 whole milk price futures had fallen to $US2410 a tonne from $US2950 a tonne on November 18.
June 2015 futures had declined to $US2500 a tonne from $US3025 a tonne.
Craigs had upgraded Fonterra to a buy from a hold based on higher confidence China would provide a long duration growth option and lower for longer commodity prices creating a down-side risk to the farmgate milk price.
The lower price gave scope for Fonterra earnings and dividend upgrades.
''The recent investor trip to China and management presentations reiterated to us the key attraction for investing in FSF is access to a long duration growth option, specifically higher margin China downstream opportunities in food services and various consumer segments.''
The peak to trough price movements over the past seven years could be mostly explained through changes in milk production growth from major exporting countries, he said.
Craigs expected commodity prices to slowly improve but remain below historical averages over the next 12 to 18 months.
