"From here, we expect world dairy prices to descend further from their peak, but to remain at elevated levels by historical standards. Overall world dairy supply remains relatively tight. Coupled with strong Asian demand, particularly from China, these factors should see dairy prices higher on average over 2013 compared to 2012," said Penny.
Production for the 2013 season was also likely to be down 1 - 2 per cent than earlier estimated.
"While the rain that has come across the country improves prospects for next season's production, it appears to have come too late to reverse falls in production this season. By itself and at this stage of the season, lower production implies a lower payout at the margin."
Penny said he would update the bank's forecast payout in coming weeks.
The total volume of dairy products sold at the latest auction rose to 17,237 tonnes from 15,019 tonnes two weeks ago. Fonterra is forecasting no increase in milk production this year as farmers dry off their herds.
The price of anhydrous milk fat fell 5.2 per cent to US$4,675 a tonne and butter milk powder dropped 3.3 per cent to US$4,500 a tonne. Butter declined 6.7 per cent to US$4,409 a tonne and cheddar rose 3.4 per cent to US$4,800 a tonne.
Lactose and milk protein concentrate weren't offered. Rennet casein fell 3.1 per cent to US$9,745 a tonne and skim milk powder fell 9.5 per cent to US$4,280 a tonne.
There were 87 winning bidders over 10 rounds. There were 135 participating bidders out of a total number of qualified bidders of 802.
See here for more details of the auction.
In March, Fonterra posted a 32 percent gain in first-half profit to $449m and lifted its forecast payout to farmers to $5.80 per kilogram of milk solids from an earlier forecast of $5.50.
At the same time, it flagged plans to slash the number of consumer brands in Australia in the face of intense competition for milk supply and retail sales.
Yesterday it announced plans to cut some 300 staff from its global workforce of 17,000 people.
with NZ Herald
