The extent of a jump in milk output has prompted New Zealand, dubbed the "Saudi Arabia of milk", to lift limits on haulage weights to allow dairy processors to keep up with farm production.

Transport officials have lifted the weight limit of laden milk trucks by one tonne to 45 tonnes until the end of the year to prevent a build-up of milk on New Zealand's dairy farms, seen as a key part of the national economy.

Fonterra, New Zealand's biggest company, and the world's top dairy exporter, said the increase would enable its 450 tankers to collect an additional 1,000 litres of milk on every run, amounting to an extra 1.2m litres in pick-ups a day.

The weight concession was a "big help", and "good" for both Fonterra and the New Zealand economy, Gary Romano, the head of trade and operations at the co-operative, said.

'Wave of milk'

The move by the New Zealand Transport Agency follows an especially strong "spring flush" – the seasonal uptick in milk output as animals are put out to pasture.

"Some of the best weather conditions we've had in years have resulted in a wave of milk coming in earlier than forecasted," Mr Romero said, with Fonterra stating flows have reached a record.

Rabobank has estimated growth in New Zealand milk output running at 10% in the four months to September.

Output typically peaks in October, hitting 2.6m tonnes that month last year, compared with 96,000 tonnes at the seasonal June low.

'Sounds like nonsense'

However, the increased supplies have raised concerns over prices, with Rabobank also noting that "improved weather in the US after the hot July and a good autumn in the European Union is keeping milk flows up higher than competing exporters would like to see".

In the US, John Kaczor at the Milk Producers Council questioned Fonterra's decision last month to stick with a forecast of NZ$6.75 a kilogramme of milk solids its estimate for milk payments to farmers in 2011-12 despite larger dairy supplies.

"Fonterra has already said they will be using some of their increased supply to produce products with lower value, but said that would not affect their [price] projections," Mr Kaczor said.

"That sounds like nonsense, doesn't it?"

'Saudi Arabia of milk'

However, Mr Kaczor was more upbeat over long-term prospects, saying that "there seems to be almost complete consensus that longer global demand, over the next 10-15 years, will increase and will challenge major exporting countries to match".

Barclays Capital analyst John Clemmow recommended investors who believed in stronger dairy prices to buy the New Zealand dollar as a proxy.

"New Zealand is the Saudi Arabia of milk supplying almost 40% of globally traded market," he said.

"The net result is that despite the myriad of domestic factors that impact the local economy, the New Zealand dollar trades almost exclusively on what milk is doing."

He suggested a pair trade of buying the New Zealand dollar while selling the Australian dollar, which appears threatened by talk of waning emerging market demand for metals.