Dairy prices soar but gloom ahead

Westpac is warning that the country's milk production could drop for the first time in five years if drought conditions in the North Island continue.

The bank's agri-economist, Nathan Penny, said milk production for the 2012-2013 season may fall by as much as 2 per cent, despite growing herd sizes and a bumper spring.

As recently as last month the bank was still expecting total production to be up slightly from last year, but the drought had since pushed production levels "off a cliff".