KEY POINTS:
The worsening drought could wipe half a billion dollars off farmer payouts by the end of the season, says dairy co-operative Fonterra.
Chairman Henry van der Heyden said every day without rain was hurting farmers and would affect local communities and the wider economy.
"The dry spell is widespread and is hitting farmers hard in most parts of the country," he said.
"We have been looking into supplementary feed options and how we can support farmers and rural communities in other ways. But the stark reality is that there is a real feed shortage both in New Zealand and overseas."
Production in Waikato on a daily basis was down 27 per cent on last year, Bay of Plenty was down 21 per cent and Taranaki 9 per cent.
Fonterra had forecast a 3 per cent increase in milk supplies for the season, but milk production to date was below last year, he said.
Fonterra re-affirmed its record forecast payout of $6.90 a kilogram of milksolids this season, compared to $4.46 last season.
Westpac economist Doug Steel said on a cashflow basis the payout had been expected to total $9.1 billion.
However, Westpac now expected total production to drop by up to 4 per cent, cutting the expected final payout by between $500 million and $600 million.
"There's still a lot of cash coming into the economy, Mr Steel said. "We would sort of suggest it's around $3.5 billion [more than last season], rather than $4 billion to $4.1 billion that we we're thinking before."
Westpac was still expecting the final payout to reach $7.20 a kilogram of milksolids.
"Certainly it feels like there's a little bit more in the tin than the $6.90 that Fonterra's currently budgeting on," Mr Steel said.
Fonterra chief executive Andrew Ferrier said that at this stage the dairy giant was confident it could meet customers' contracted orders.
"Given our expectations of significantly reduced supply in New Zealand, we now find ourselves effectively booked up for the season.
"This is forcing us to advise customers that we may not be in a position to take all new orders for New Zealand supply."
