Dairy co-operative, Fonterra, may raise its forecast payout for the next season to $7.40, or more, per kilogram of milk solids but it's likely to pay out only about $6.50 per kg the following year.
Westpac economist Nathan Penny said he's been surprised at how high global dairy prices have remained but he doesn't expect this will last indefinitely.
He said one factor is that there has been weak production elsewhere in the United States, Australia and Europe and the markets are still waiting to see increased New Zealand production on the board before they start pricing in lower dairy prices.
Mr Penny said that's led to prices remaining high and an increase in the forecast dairy payout.
He's forecasting that dairy prices will fall by about 20% by the end of the year.
Mr Penny said prices are currently very high and only about 8% off April's record prices.
He said some of this season's high prices will flow through into next season and a 20% drop would still mean very high prices for dairy historically.
Mr Penny said he expects milk production will rebound from the drought with good autumn growing conditions.
