Fortunately, production was relatively soft in the EU, the United States and Australia. However, given New Zealand’s large share of global dairy exports — particularly whole milk powder and butter — the mini glut in production was leading prices lower.
In net income terms, the higher production was not enough to offset the lower milk price and the bank estimated forecast farmer incomes were about $370 million lower as a result of the forecast changes.
There were risks production could go even higher this season given the current production momentum, Mr Penny said.
There was also an increasing chance of an El Nino weather pattern this summer and the associated dry conditions could crimp production later in the season.
If production growth did exceed expectations, then dairy prices would come under further pressure. Season-to-date production was running more than 6 per cent ahead of the corresponding time last season and, with growing conditions still favourable, production strength was expected to continue over the remainder of the year.
ASB had also lifted its 2018-19 production growth forecast from 4 per cent to 5 per cent which meant the season should set a new production record.