Rabobank predicts 2% NZ milk production growth in 2018/19

Dairy production is expected to increase this year. Photo / File

Rural banking specialist Rabobank expects New Zealand's milk production to grow by 2 per cent in the current 2018/19 season and a farmgate milk price of $6.80 per kg of milksolids.

The milk price forecast compares with Fonterra's current season forecast of $7.00/kg.

The bank, in its latest commodity outlook, said the milk pool for the current 2018/19 season will grow again - whether permitting.

"This season, however, will be real test for determining the appetite of New Zealand dairy farmers to invest in further expansion," the bank said.

"Uncertainties in the local operating environment will see only modest production growth, despite attractive forecast milk prices," it said.

Sentiment in global dairy markets had waned in recent weeks amid concerns about trade wars, excess dairy stocks and a strong finish to the 2017/18 New Zealand season.

As a result, global dairy commodities prices softened slightly in early July.

"However, global market fundamentals have not shifted, suggesting a well balanced market in the coming months, supported by limited growth in the Northern hemisphere - but with a watching brief on the New Zealand spring flush," the bank said.

Separately, Dairy Companies Association of New Zealand data, out today, showed that milk production in June - the first month of the new season - was up 12.1 per cent on a milksolids basis.

New Zealand milk production for the 12-months to June was down by 0.7 per cent.

This week's Global Dairy Trade auction showed prices fell by 1.7 per cent, driven mostly driven by big falls in the price of butter and rennet cassein.

Prices for whole milk powder - which have the greatest bearing on Fonterra's milk price - gained 1.5 per cent to US$2971 a tonne.