Wellington, July 2 NZPA - Fonterra says customer demand for its whole milkpowder has picked up, but buyers on its regular internet auctions are being cautious.

The big dairy cooperative said that its July auction in the early hours of today saw continued "market caution" around pricing.

"We saw increased customer demand, but they remain wary about paying too much in an uncertain environment," said Kelvin Wickham, managing director of Fonterra's global trade arm.

Buyers were taking a conservative approach "as they try to second guess when the inevitable increase in demand -- and consequently prices -- will occur," Mr Wickham said in a statement.

The average price achieved across all contracts and contract periods for whole milkpowder (WMP) was $US1829/tonne, down $57/tonne (or 3 per cent) from the June auction.

Mr Wickham said the global dairy market was still in a re-balancing phase.

"On the one hand milk supply globally is declining sharply, but, on the other hand, recessionary conditions mean consumers have reduced their purchases of dairy products.

"Right now our customers are attempting to predict exactly when decreasing supply or increasing consumer demand will result in an inevitable firming of prices."

The short-term price, for shipments in September fell 8 percent to $US1841/tonne. Further out, for shipment in October-December, prices at auction fell 4.6 percent to $US1806/tonne.

But there was a brighter note, with the price on shipments between January and March next year lifting 1.9 percent to $US1849/tonne.

At last month's auction, the longer-range price fell 14.2 percent to $1814/tonne for December-February shipping.

In June, the average price at auction fell 12 percent, overall, after slipping more than 4 percent in May.

The latest auction has revived speculation Fonterra's forecast payout for the current milking season could be cut from $4.55/kg milksolids.

This payout figure is down 12 percent on last season, with Fonterra blaming weak demand. It has also criticised renewed export subsidies being paid by the United States and European Union for dairy produce.

Blue Read, chairman of Fonterra's shareholders' council, told Radio New Zealand there were "a fair number" of the cooperative's 10,500 farmers exposed to losses at the $4.55 payout level.

If the forecast payout fell further, "I don't think there's much insulation left", he said.

The next Fonterra auction will be held on August 3.