The giant co-op processed 9.9m kg of milk solids in June, down from 11.1m for June 2015. Production in the South Island fell by 22% to 2.3mkg while the North Island, where the season starts earlier, was down 6% to 2.03m kg.

The overall outlook for milk prices is looking brighter as Fonterra is selling more ingredients direct to customers and has cut stocks by 11% since this time last year. Fonterra shipped 215,000t of dairy products in June.

The lower forecast for milk supply for the 2016/'17 season, combined with lower closing stocks, means global ingredients will start the new financial year with a much tighter stock position than in the previous few years.

During the previous year ending in May, China imported 410,000t of dairy products, up by 23% from the previous year.

Fonterra is also selling UHT milk powder through an online platform to China. Retailers can order directly from an app. There are already 15,000 stores using this system but this is expected to reach 50,000 by the end of the year.

Latin America is also showing strong growth, importing 11% more product than they were a year ago.

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