New Zealand has experienced a recent, rapid slowdown in milk production according to industry commentators, Dairyco reports.

This could help to offset the seasonal increases in European milk production which are threatening to limit recent improvements in global prices, the organisation says.

Fonterra forecasts suggest that with the reduced farmgate price and ongoing dry weather across New Zealand total milk volumes in the 2014/15 season will be 3.3% down on last year, Dairyco reports.

Dairyco said that this translates to about 15% reduction in milk produced in the remainder of the current season (Jan-May) as production in the first seven months is around 4% up on the previous year.

The organisation said that with farm incomes likely to be lower this year, New Zealand dairy farmers may be incentivised to reduce herds by the current high prices for cull cows.

Culling rates in both the North and South islands are reported to be significantly above the same time last year, it says.

Should this lead to a significantly smaller national herd it may delay any response to more favourable weather conditions and/or improved farmgate milk prices, Dairyco said.

Late last year Dairyco said that with New Zealand being one of the world’s largest exporters of dairy products, accounting for around 60% and 20% of global exports of butter and skimmed milk powder (SMP) respectively, any restriction in farmers supply in New Zealand could help to stabilise global prices.

Drought was recently declared on New Zealand's South Island, where the Minister for Primary Industries, Nathan Guy said that the drought is a recognition of the extreme dry conditions farmers and growers are facing.