Rain has fallen in most of the nation's dairying areas over the last week or so, but Fonterra chairman John Wilson said it would take six weeks to determine whether the drought that hit most of the country had caused any lasting damage.
He said milk production had been very strong until February, when the drought started making its presence felt. Since then, production had fallen back sharply.
Speaking after a blessing of Fonterra's new UHT milk processing plant at Waitoa, Wilson said the drought had hit most of the country - with the exception of much of Canterbury, which had escaped the worst of it through irrigation.
"This rain has been great, but much will depend on the next six weeks as to whether we can turn this around or not," Wilson said.
Current conditions were in stark contrast to last autumn, which was exceptionally strong.
Wilson said that by the time this season finishes at the end of May, production could be down by 1 or 2 per cent compared with the previous season.
He said dairy farmers' cash flows were "under the pump" and Fonterra had much less milk to sell into what had been an exceptionally strong dairy product market.
"Now it depends on how long it stays warm to get that grass growth, because average grass cover on our farms is very, very low," he said. "We need soil temperatures to stay warm over the next six weeks to be able to utilise this soil moisture to get the grass growth," he said.
Good grass growing conditions would be required to get cows back into condition for calving in July and August, he said.
Wilson said farmers would be hoping for a mild winter, but that the length and intensity of the summer could have long-lasting implications.
Chief executive Theo Spierings said production volume had fallen quickly to the point where Fonterra was having to allocate product for some customers.
"It means we have under-utilised assets because the milk is not there, and we are putting some of our customers on allocation, which is not the best place to be," he said.
Spierings said Fonterra had advanced money to some of its more distressed farmers as a result of the drought.
Prime Minister John Key attended the blessing of the start of construction of Fonterra's new $126 million UHT milk processing plant at Waitoa.
Spierings said the plant, which will be running from April 2014, would enable Fonterra to increase production of high-margin UHT product by 100 per cent over the next few years.
The five new UHT lines will produce a range of products for the food service sector, which was part of a business that generated more than $1 billion in sales a year for Fonterra. APNZ