New Zealand's Fonterra dairy co-operative on Thursday cut its forecast on the amount of milk it will get from suppliers this season as dry weather in the world's largest dairy exporting country hits output.
The company said it would collect 1.532 billion kilograms of milk solids in the year to May, 3.3 percent less than last season's record production, as a lack of rain had left pastures dry.
Farmers have also been reining in milk production after a flood of supply from Europe and the United States pummeled prices, stoking economic fears in a country where milk products account for around one-third of all exports.
"In the first half of the season, excellent pasture conditions resulted in milk volumes being higher than the previous season. The situation has changed significantly over the course of this month," Fonterra director of co-operative affairs Miles Hurrell said in a statement.
He added that in some regions where pasture quality had deteriorated, farmers were starting to stop milking cows through a process known as "drying off". He also noted that there appeared to be a decline in use of feed supplements due to their expense.
Some parts of New Zealand are experiencing warmer summer temperatures than normal, which are expected to continue through March. In addition to below normal rainfall levels in some regions, this has resulted in reduced grass growth.
The world's largest dairy processor has already slashed the forecast for the price it pays its farmer shareholders for milk, due to a 50 percent fall in global dairy prices in 2014.
Last month, Fonterra cut its milk price payout forecast to an eight-year low of NZ$4.70 ($3) per kilogram of milk solids, sharply down from last year's record-high NZ$8.40, as global production soars and buying from China and Russia falls.
The latest payout forecast takes the farmgate price paid to farmers further below the average cost of production around NZ$5.50/kgms, while analysts see scope for an even lower payout.