Wellington, July 4 NZPA - Fonterra may cut its forecast payout to farmers this season following the fourth consecutive month of lower prices on its internet auctions.

The company said today it is reviewing the 2010-201 payout forecast because of falling dairy prices.

"It's important in this environment to let our farmer-shareholders know as soon as possible if we think there could be any impact on payout," said chief executive Andrew Ferrier.

The company's global dairy trade trade-weighted index fell 8.3 percent today after the average selling price of all products dropped to $US3080 ($NZ4199) a tonne.

Fonterra said the auction result reflected a rebalancing of the market as supplies increased amid uncertainty over the economic outlook.

Prices have fallen 24 percent since a 21-month high at the April auction, when the average price for whole milkpowder was $US3969/tonne, compared to today's $US2974, which was down 7.7 percent on a month ago.

At the previous auction in July, the weighted index for a basket of products at the auction fell 13.7 percent. It dropped 3.5 percent in June after falling 0.8 percent in May.

The biggest drop at today's auction, 13.2 percent for all products, was in the shortest term contracts, for October delivery.

Contracts to deliver over the three months from November - the height of the southern hemisphere dairy season - fell 8.6 percent, and contracts for the three months from February fell only 1.7 percent.

In May, Fonterra chairman Sir Henry van der Heyden made an impressive milk payment forecast of $6.90-$7.10/kg milksolids for the new season, and said that the season's total payout to 10,500 farmers could be "well over $8" if current international prices and exchange rates held.

A payment of $8/kg of milksolids for milk and dividends would mean a $2 billion injection for the nation's economy, but Sir Henry also warned of the potential for volatility in commodities prices.

Today, Mr Ferrier repeated that warning: "We always said there would be a lot of volatility in the market".

The high exchange rate for the New Zealand dollar was also hurting the returns from dairy products.

Economists at global investment bank Goldman Sachs said tonight there was a "downside risk" to the milk price to be paid to farmers, though it noted the season had only just got underway.

There was potential for the milk price forecast of $6.60/kg milksolids to drop below $6/kg.

This level of payout would still be high by historical standards, but would "present a challenge" in light of elevated levels of debt owed by some farmers, in addition to reduced appetites from rural lenders to provide finance lend for the dairy sector.

Fonterra directors have previously estimated at least 15 percent to 20 percent of its farmers are dealing with very tight cashflows, paying high interest rates to banks which won't increase their overdrafts.

Goldman Sachs said today's result suggested support from high commodity prices was beginning to wane, which could have implications for domestic economic conditions, since dairy farmers' incomes and investment plans are closely tied to international dairy product price movements..

"Our concern is that with the domestic economy remaining lacklustre, weaker commodity prices will leave the economy without any engines for growth so to speak," the bank said.