The lack of rain through eastern parts of the country is going to knock milk production this season.
The unknown at this stage is, by how much.
Fonterra's milk collection last month was still running 4 percent ahead of last season, but the rate of growth was slowing, and South Island supply had dropped to a 1 percent margin.
Canterbury dairy company Synlait Milk said the dry weather in the region has had little impact on its milk supply so far, because almost all of its suppliers have access to a reliable irrigation. But it acknowledges that prolonged dry conditions and tighter irrigation restrictions could change that.
Photo: RNZ
Dairy industry body, Dairy NZ, said it was clear that milk production increases forecast earlier in the season, would be trimmed back. General manager of extension, Craig McBeth, said the impact will vary from farm to farm, depending on factors like feed supplies.
"The New Zealand dairy industry has been growing for some years. It's tended to see increased milk supply each year, but generally speaking, places like Canterbury and Southland which have had a wet and difficult spring, will be struggling to meet the historical production that they have achieved, particularly if the irrigation systems in Canterbury are going to be confined, in terms of the amount of water that farmers can draw.
"If irrigation in Canterbury is reduced as it has been in South Canterbury, then the ability of farmers to grow the same amount of grass on farm as they did last year will be suppressed. The other factor is that the economics of buying additional supplement to replace that home-grown feed won't be as attractive and therefore farmers will be making good economic decisions to feed fewer cows, therefore producing less milk."
Meanwhile, Fonterra has cut back again on the amounts of whole milk powder it is offering on the Global Dairy Trade auction.
It is putting up just over 8000 tonnes of whole milk powder for the auction tonight. That is more than 3000 tonnes less than it offered for the last auction a fortnight ago. It has also lowered the forecast amounts of whole milk powder it will be offering at the next three auctions in February and March.
Fonterra has been cutting back on the amount of whole milk powder for GDT auctions because it has taken the biggest hit in the dairy commodity price slump seen in recent months and has the biggest influence on milk payments to farmers.
However, whole milk powder prices have lifted a little in the last two auctions along with prices for most other products, and the industry is hoping that marks the start of a recovery.