The worldwide supply and demand situation for dairy products has translated into a record farm gate price of NZ $7.30/kg (USD 5.62) of milk solids being paid to New Zealand dairy farmers for MY 2007/08. While next year’s farm gate price will likely be lower, it is still expected to be the second highest payout on record. While the record high payout should have resulted in a jump in production, New Zealand dairy production is forecast to slump 4.6% in MY 2007/08. The main reason for the decline is the drought that covered much of New Zealand during January through April 2008. Skim milk powder and butter exports are expected to fall significantly in MY 2007/08 while whole milk powder export volumes are expected to remain constant. Cheese exports are forecast drop approximately 3% from MY 2006/07 levels.