Wet weather stalling NZ dairy production

ASB senior rural economist Nathan Penny. Photo / Supplied

Wet weather in key New Zealand dairying regions is beginning to stall dairy production, ASB senior rural economist Nathan Penny says.

The latest production data showed August production was 1.5% below August last year.

Production had been running at a "healthy" 12.8% ahead for the season when compared to the same period last season.

However, farmers shifting to winter milk - producing during the winter months to gain price premiums - accounted for the majority of that lift, he said in the latest ASB Commodities Weekly.

"The August data gives a truer reflection of the production strength and clearly shows the wet weather is taking its toll."

Also, a hangover from last year's poor spring might be having an impact this season, Mr Penny said.

Last year's wet spring led to poor mating results which was reflected in late calving and late production this spring.

A key deadline was fast approaching for New Zealand production over the rest of the spring months. October was the seasonal peak for the New Zealand production season. September and November were also key months, he said.

"As a result, if the weather doesn't improve soon, we will drop our production forecast and then, off the back of that move, lift our milk price forecast."

ASB had a forecast of 4% production growth this season. If it dropped about 2% of the production forecast, ASB would lift its 2017-18 forecast to $7 a kg/ms from its $6.75 kg/ms forecast, Mr Penny said.

The ASB New Zealand Commodity Price Index prices were largely unchanged last week in New Zealand dollar terms. A small rise in prices was offset by a stronger dollar.

Surging wool prices lifted the sheep/beef index 1.5% in US dollar terms. Forestry prices posted a small rise, lifting 0.2%. The 0.9% rise at last week's GlobalDairyTrade auction eclipsed a small dairy price fall last week.

Mr Penny said the New Zealand dollar was volatile last week as the currency reacted to the impact of geo-political tensions, Hurricane Irma and election poll results. The volatility was expected to continue.