Fonterra restated its warning of "uncertainty" in dairy markets, evident in a reluctance of buyers to commit to longer-term deals, as it unveiled a slide in revenues in the first half of its financial year.

Andrew Ferrier, the Fonterra chief executive, said the dairy giant had detected "welcome" signs of stability in dairy markets, evident in a decline in price volatility.

The New Zealand-based co-operative was "not seeing big surges of supply" from Europe, the world's biggest milk producer, or the US.

Many observers had feared that revivals in northern hemisphere output, or the release of stocks built up through intervention buying, might undermine the revival in dairy prices since last summer.

Meanwhile, demand was being helped by "slow, steady growth" in the global economy.

'Element of uncertainty'

"However, there is still an element of uncertainty as to how supply and demand factors will influence prices over the coming months," Mr Ferrier added.

Fonterra's customers were "generally focusing more on their buying needs for the short-to-medium term".

Concerns over longer-term prospects have been evident at the group's globalDairyTrade internet auctions of milk powder where, unusually, prices of distant contracts this month fell below those of nearer-term lots.

Typically, distant contracts attract a premium to account for factors such as storage costs and market uncertainties that may arise in the extended period before delivery.

Nonetheless, Fonterra stood by a forecast milk price of NZ$5.70 per kilogramme of milk solids for the year to the end of July, putting farmers on course to receive their second highest cash returns in the group's history.

Marketing spree 

In the six months to January 31, Fonterra's revenues slid by 3.7% to NZ$7.7bn, undermined by the weaker milk prices, in particular at the start of the period.

Meanwhile, an advertising splurge, amid a battle among dairy giants for share of Western markets, helped send operating costs up 5.8% to NZ$1.01bn.

In the second half, the group's Asian and Australasian businesses were poised to see growth in operating profits of up to 20%, helped by lower prices of dairy ingredients.

However, the commodities and ingredients business itself was poised for a slump of up to 30% in underlying operating profits, held back by an inability to pass on in full in prices of products such as cheese and casein the increased cost of milk powder.