On Monday this week, New Zealand’s largest dairy processor Fonterra released figures to show that milk collections contracted sharply in the last month as poor weather continues to hit supply.

Fonterra’s milk collections for October, which is the month of peak milk supply in New Zealand, were down 8.3% compared with the same month last year.

The North Island in particular saw a major drop-off in supply, with milk collections back close to 12%.

This severe decline in October milk volumes means that Fonterra’s total supply for the current milking season is running at more than 5% behind where it was in 2015.

And it is this contracting supply picture that has helped boost global dairy commodity prices in recent weeks, with the GDT index hitting a two-year high at the latest auction.

US picture

If the supply picture in New Zealand is one of decline, the situation in the US couldn’t be more contrasting where dairy farmers continue to drive milk production.

Figures released this week by the USDA show that US dairy farmers produced almost 7.8bn litres for the month of October, a 2.5% increase on the same month last year.

A bumper grain harvest in the US and another year of cheap corn prices has undoubtedly fed the US milk supply tap in 2016. Milk output in the US is currently running at 1.8% ahead of 2015 and is on track to hit a record 96.3bn litres for the full year 2016.