Rural economists are predicting a drop in dairy production and farmer income as the effects of the severe dry weather across the country start to bite.
There are drought-like conditions in many parts of the country, including in key dairy regions of Northland and Waikato.
The ASB has cut its 2019/20 forecast milk price payout to farmers down 10 cents to $7.40/kg.
It has also trimmed its 2019/20 dairy production growth forecast to -0.5 percent, saying the drought was expected hit to farm production and incomes in some key dairying regions.
"We also note for some farmers hit by the dry, the lost production will be the more significant impact on farm bottom lines," said ASB senior rural economist, Nathan Penny.
Meanwhile disruptions from coronavirus outbreak drove internatonal dairy prices lower for the second successive Global Dairy Auction.
Key whole milk powder (WMP) prices dipped 2.6 percent, while overall prices fell 2.9 percent..
Despite the drop, Penny said the impact of the coronavirus on dairy markets was starting to run its course.
"In total over February, whole milk powder prices have fallen 8.6 percent, which does not make the top 30 of monthly auction falls.
"Moreover, Chinese buyers remain active, albeit cautious, on the auction platform. These signs remain consistent with our central view that the coronavirus impact on dairy prices will prove modest and short-lived," he said.