Cold weather hampers milk flow

Fonterra is facing its second poor production season in a row as cold weather curbs milk flows and wipes out early hopes for a bumper year.

"The good start to the season is a distant memory for many farmers," said Brent Taylor, Fonterra general manager New Zealand manufacturing.

The cold snap across the country in the past few weeks has put the brakes on dairy production while dry weather in the South Island and wet weather in the North Island have added to farmer woes.

Fonterra is now predicting "it may not reach the peak flows of previous seasons".

Last season, the amount of milk Fonterra collected from farmers dropped for the first time - from 14 million litres to 13.5 million.

It is unclear if this season will be worse than last year but a return to the highs of the two or three years ago now looks unlikely.

In some areas, milk flow is already dropping off from an early October peak. Taylor said the traditional peak flow was mid to late October or as late as early November.

In the central North Island, milk production peaked on September 29 and has dropped nearly 3 per cent since then.

Fonterra's ability to supply some products to customers can be affected by the production volumes.

A Fonterra spokesperson said it was still too soon to say what the impact on markets might be.

"That would depend on how long the downward trend in milk flows continues."

Fonterra increasingly uses milk from other countries - such as Australia and Chile - to supplement its local production base.

But the news is not good for farmers who had high hopes that increased production might offset a drop in the price Fonterra is paying for milk this year.

John Sexton, Auckland president, Dairy Farmers of New Zealand, said the difference between a good production year and a bad one could be as much as 20 per cent of a dairy farmer's income. That kind of loss would hit some particularly hard with a reduced payout also expected from Fonterra this season.

Fonterra has forecast it will pay farmers $4 per kg of milk solids this year - down from $4.59 last season.

But industry fears about farm incomes have had no impact on soaring farm prices. The median dairy farm sale price surged to $3.1 million in September - a record high, Real Estate Institute figures show.

Sexton said the growing gap between property prices and farm incomes highlighted issues facing the economy.

Farmers are desperate to see the value of the dollar drop so that export returns rise.

But the Reserve Bank's efforts to dampen the property market - by increasing interest rates - are prolonging the dollar's strength.

Sexton said that meant even more damage was done to the productive part of the economy.

The median September sale price for farms - across all sectors - rose to $873,000 from $807,000 in August.


Seasonal matters

* Bad weather has slowed milk production and ended early optimism about a bumper dairy season.

* The damage was done by a cold snap - combined with too much rain in the North Island and not enough rain in the South Island.

* But dairy farm prices continue to rise - latest figures show the median sale price for September hit a record $3.1 million.