International dairy prices have fallen by up to 38% in the past 14 months but Fonterra says it was expecting the correction.
Easing international prices would have no impact on domestic dairy product prices, because lower international values had been expected and factored into pricing, Fonterra said.
"Commodity prices, in New Zealand dollars, have not come down to anywhere near the levels they were 18 months ago," a Fonterra spokeswoman said.
For the past year Fonterra Brands New Zealand has been subsidising the local dairy market by not passing on the full amount of booming international dairy prices to NZ customers, she said in a statement.
Fonterra chief executive Andrew Ferrier said world markets were reacting to a combination of a 4.5% lift in United States milk production and some consumer resistance to record prices.
"We always expected that at some point the very high prices would slow demand down," he said in an interview.
Mr Ferrier said demand started slowing between March and May but the real impact was felt in June and July and he expected it to continue for the next six months.
Also, US production was likely to continue growing for the next nine months before easing, he said.
The falling exchange rate was in exporters' favour, softening the impact of falling prices. Also, whole milk powder was still selling for US$3100 to US$3400 a tonne, well above the US$2000 a tonne paid three years ago.
The Fonterra board would announce any changes to its forecast payout after its September meeting, Mr Ferrier said.
While international prices were expected to recover after easing in the short term, they were unlikely to return to levels seen in the past 12 months.
Westpac Bank senior economist Doug Steel said US milk future markets indicated further price weaknesses.
"Other dairy commodities like butter and cheese have held up better to date, but skim milk powder prices tend to lead the others and the direction is clear."
Mr Steel expected prices to fall further and by the end of this season to be half of what they were at their peak.
With an average currency conversion of US69c and a 35c contribution from Fonterra's value-added activities, a payout for the 2008-09 season of $7.10 a kg for milk solids was forecast, he said.
Last season's final payout for milk solids was $7.90 a kg.
Mr Steel has also forecast a 9% increase in production as regions recover from last year's drought and also from new dairy conversions.
"Combined with a $7.10 a kg milk-solids payout, dairy farmer incomes, industry wide, for the coming season are expected to be just shy of the estimated $10 billion from the previous season."
But further out, the bank has revised down its forecast milk-solids payout for the 2009-10 season from $6.30 a kg to $6, Mr Steel said.
Mr Ferrier said the latest Internet-based global auction - globalDairyTrade - held last week, succeeded in giving producers and consumers an insight into actual dairy prices.
At last week's auction the clearing price for regular whole milk powder was US$3306 a tonne, with prices ranging from US$3150 to US$3435 a tonne.
"We are happy with the way it is working and it is showing us where the market is," Mr Ferrier said.
These prices were back on the August auction, when they ranged from US$3705 a tonne to more than US$4000.
Fonterra expects to sell 200,000 tonnes of whole milk powder by auction this year, before adding other dairy products to the auction list.
