KEY POINTS:
Stunning summer weather might be making holidaymakers happy but it is expected to hit dairy production this season.
Farmers aren't talking about drought conditions yet but some are already preparing for the worst.
Dry weather is traditionally one of the biggest threats to New Zealand's economic growth. A
serious drought in 1997 and 1998 cost the country about $1 billion in earnings and contributed to a recession.
Federated Farmers president Charlie Pedersen said dairy farmers were drying off and culling cows earlier than normal.
"That's a natural and first step of a farmer who's facing a feed deficit," Pedersen said.
Many dairy farms were 10 per cent or more below last year's production levels at this stage, he said.
"It's looking like probably less milk out of this country perhaps this year."
Westpac's Doug Steel said the feeling was that growth in dairy production would be lower than expected but it was hard to predict the impact from farms converted to dairying.
"I would be very surprised if it was in aggregate down on last season just because of the conversion factor giving an underlying sort of growth but at this stage I probably couldn't rule it out either, especially if it continues to be dry in the major producing areas," he said.
MetService Weather Ambassador Bob McDavitt said droughts could be defined by a dry period of about 21 days, regions with the least rain, soil moisture content or by the drought code used to calculate the fire weather index.
A drought code reading above 500 was considered serious.
As a rule of thumb two weeks without rain was enough to stop grass growing.
Palmerston North has been 20 days without rain, although there had been torrential rain on the Tararua Ranges earlier in the month, while Waikato has had less than 10mm of rain in January.
"I think it's just that they're unlucky," McDavitt said. "It is a La Nina summer and the Waikato is expected to get its normal rainfall during February."
Westpac tracks the Southern Oscillation Index (SOI), which measures air pressure fluctuations between Tahiti and Darwin. SOI readings taken in December were on the verge of being considered strong La Nina conditions, which usually brought northeasterly winds, moisture and rain to the north-east of the North Island.
Westpac's Steel said agricultural production was expected to improve through the later part of 2008 and into 2009.
Westpac still predicts the Fonterra payout this season could reach $7.20 per kg of milksolids.
The weather would not show up on the Reserve Bank's radar, although if the dry spell became more pronounced it could take it into account, Steel said.
"It didn't rain this month but it might rain next month, you can't really run monetary policy on that."
Bank of New Zealand chief economist Tony Alexander said the dry weather would impact on earnings "but I would suggest that impact is completely lost in the wash of these other huge forces that are going on out there".
The forces at play included a housing market in decline in some parts of the country, spending restrained by high interest rates, uncertainty about the global environment and the general boom in the dairy sector.