Fonterra is expecting the dairy market to remain volatile for some time.

It's half year net profit is down 16 percent to 183 million dollars.

That has led to forecast dividends being reduced by five cents to between 20 to 30 cents per share.

Fonterra Chairman John Wilson says challenging dry conditions this summer has also forced them to down grade forecast milk production for the year.

"We're currently forecasting being about two percent down from last year, so about 1.55 billion kilograms of milk solids down...from last year."