The "impressive" two-year spurt in New Zealand milk production  - one of the most closely-watched dynamics in world dairy - is poised to end as "more normal" weather conditions take hold, US officials said.

Milk output in New Zealand, the top dairy exporter, is to rise 7.3% in calendar 2012 to a record 20.35m tonnes, boosted by "excellent pasture conditions" which supported last year's output too, the US Department of Agriculture bureau in Wellington said.

Indeed, with 2011 recording 10% growth, the two-year jump in output "is testament to the considerable genetic potential of the New Zealand dairy herd that was just waiting for the right environmental conditions to be expressed", the bureau said in a report.

The increase, ahead of a 7% rise in cow numbers over the two years, represented an "incredible result".

'Supply to decline significantly'

However, the "run of excellent weather conditions has to come to an end at some point, and with it the extraordinary production increases", the briefing said.

"Given these conditions, North Island milk supply is expected to decline significantly" during the six months.

Monthly New Zealand milk production data have not recorded a year-on-decline since December 2010.

'Lower milk price outlook'

Meanwhile, farmers look set to lose insulation from high world feed prices which they gained by building up feed inventories early in 2012, when costs were relatively low.

"During the first half of 2012 farmers were operating under a forecast milk price that was relatively high providing them the confidence to purchase or accumulate supplements to increase production," the report said.

"A lower milk price outlook," as measured in forecasts from buyers such as Fonterra, the world's biggest dairy group, which last month cut further hopes for payouts to producers, "will tend to put a dampener on farmers purchasing supplementary feed to boost production".

The bureau foresaw New Zealand milk output falling in 2013 for the first time in five years, if by a modest 0.7% to 20.20m tonnes, with a continuation of farmers switching to dairy, and herd improvements, limiting the size of the production slide.

Powder vs fat

New Zealand milk production is seen as a key influence of international prices, with levels of surplus milk affecting the amounts of products such as milk powder, butter and milk fat the country will possess to place on the world market.

The country is likely to leave production of whole milk powder", the product of choice for New Zealand dairy processors", largely unchanged in 2013, with volumes to be supported by a new plant – the world's biggest – that Fonterra is expected to open on South Island next year.

This will allow the group more flexibility to maximise manufacture of the most profitable product.

For milk fat "the trade reports some uneasiness with regard to demand, and relative pricing among dairy products at the moment", the report said.