Fonterra has held its forecast for lower milk volumes this season while signalling production may decline further in response to lower prices.

Fonterra is required under the Dairy Industry Restructuring Act to update its current season forecast milk volumes by early September.

The dairy co-operative said that it was maintaining its milk volume forecast for the 2015-16 season at 1,589 million kgMS, "which is in the range of 2-3% lower than the amount collected last season".

However, it may revise this lower as farmers pull back production through the season, it said in a statement.

"Farmers are responding to the lower forecast farmgate milk price by returning to more traditional farming practices," said Fonterra group director co-operative affairs Miles Hurrell.

"They are reducing the use of feed supplements, and lowering stocking rates per hectare as they concentrate on utilising pasture.

Still, it is early in the season, and any forecast at this point is very dependent on weather conditions, which have so far been poor for production.

“Given these variable factors, we have decided to maintain our current forecast milk volume at this very early stage of the season,” he said.

Fonterra, the world's largest dairy exporter, last month cut its forecast farmgate milk price payout to farmers for the 2015/16 season to $3.85/kgMS after dairy prices slumped to a six-year low amid increased supply and weak demand.

After 10 consecutive falls in prices at the GlobalDairyTrade auctions, the last two have seen a sharp bounce back.

Economists see it as important that there is a meaningful drop in production here in order for global prices to stabilize.

However, there also needs to be a reduction in production in other parts of the world too, and the Reserve Bank was indicating that the easing in global production growth "has been more gradual than expected".