DairyNZ says New Zealand milk production is expected to fall by 2 or 3 percent this season as farmers focus on improving the efficiency of their farming systems.
Analysis undertaken by DairyNZ's economics group showed farmers had reduced cow numbers through culling earlier than normal in the last season.
"This looks likely to continue this season in response to low milk prices," DairyNZ senior economist Matthew Newman said in a statement.
"Fewer cows along with less supplement use will inevitably mean less milk is produced and processed, and so we are at this point in the season forecasting a drop of about two to three percent."
High production in New Zealand and other dairy producing countries has created a supply/demand imbalance, which has severely depressed prices.
Signals from DairyNZ's 14,000 levy-paying dairy farmers were "intensely focused" on how to achieve cost-efficient production this season - removing any unnecessary costs that will reduce the need to increase their debt and help minimise their losses, Mr Newman said.
The number of cows going to meat processors is up 21 percent, more than 185,000 on the last year ended May 31 - a high level for the industry.
"Given this increase and the impact that will have on cow numbers, we don't expect to see herd sizes increase this season across the country," Newman said.
He said the question still hanging over the season is what the El Nino weather pattern brings in terms of the climatic conditions for farmers for late spring, summer and then autumn.
Cold weather in July has not helped grass growth and Newman said if dry conditions return this summer, production could drop further.
New Zealand's biggest dairy co-op, Fonterra, is scheduled to release its revised farmgate milk price forecasts for the current year on Friday, along with its own production forecasts.
Results of the latest GlobalDairyTrade auction, which saw whole milk powder prices drop by 10.3 per cent to their lowest point since 2008, will weigh heavily on the milk price forecast.
The forecast, which sits at $5.25 a kg of milksolids, is likely to be revised downward, with some picking a revised forecast as low as $3.50 a kg.
- By Jamie Gray, NZME News Service business reporter