Fonterra Co-operative Group has lowered its forecast for New Zealand milk production and won't be selling as much milk powder on its global online platform.
New Zealand milk collections for the current 2017-18 season are now forecast to be 1480 million kilograms of milk solids (kgMS), down 4 percent on the previous season and down from the 1525m kgMS previously forecast.
Dairy farmers had to deal with a wet spring, and now dry conditions - which are set to continue - are affecting pasture quality across the country.
"Even if the rain forecast for early in 2018 eventuates, it will not be enough to bring production back to previously anticipated levels," the co-operative said on Friday.
Fonterra said it would begin to take volumes of whole milk powder off the Global Dairy Trade platform in response to lower milk supply.
In an investor briefing earlier this month, Fonterra said future demand will exceed New Zealand-sourced milk supply.
It said capturing additional demand would require offshore milk sources.