The government is keeping close watch on the "big dry" in many regions and will consider drought assistance if conditions worsen, Agriculture Minister David Carter says.
Northern and eastern parts of the country are parched due to windy dry weather. Irrigation bans are in place in some regions.
"Northland is rapidly approaching drought status and the eastern coasts of both islands are very dry, particularly parts of central Otago, coastal Canterbury, parts of Gisborne and inland Bay of Plenty," Mr Carter said.
Ministry of Agriculture and Forestry staff were monitoring the situation and liaising with 14 local rural support trusts which provide farm management advice and other help in communities battling adverse conditions.
"Expected rain in parts of the country this week will provide relief, but it may not be enough to remove the risk of drought in some regions," Mr Carter said.
"Many farmers are still recovering from last year's drought and have been working hard to build feed reserves, restock their farms and improve stock conditions," he said.
Drought could have a devastating effect on farmers, rural communities and the economy, with the impact felt by all New Zealanders.
Federated Farmers has said the looming drought could drain several billion dollars from the economy, in terms of earnings farmers would have to forego.
The last significant drought, two years ago, cost the country almost $3 billion in lost earnings.
The lobby's president Don Nicholson said poor grass growth in Northland, Otago and along the east coast meant some farmers were being forced to sell their stock or stop their cows producing milk because they could not afford supplementary feed to replace pasture.
In Northland, Whangarei received only a third of the usual rainfall in the three months leading up to January 1 -- less rainfall than in the three months before the 1987 drought when levels at Whau Valley Dam dropped to 12 percent of the full capacity.
Farmers have said that if the present weather conditions continued for another three weeks the milking season was likely to end early on many Northland farms. Some Waikato and eastern Bay of Plenty dairy farmers were also being affected.
The National Institute of Water and Atmospheric Research (Niwa) predicted summer rainfall and river flows below normal in much of the North Island through to February.
Fonterra has said it may collect less milk from its farmers, with milk production in the North Island expected to be down about 2 percent, South Island production up about 3 percent and overall milkflows down 0.8 percent.
The diary giant expected to collect about 16 billion litres of milk in the season ending May 31 with about half from the top half of the North Island.
It had been forecasting a small increase in production.
"There's a lot of the season to go but any growth we're experiencing in the South Island is going to be lost by reduced production in the North," Fonterra's commercial general manager Jason Minkhorst told Bloomberg newsagency.
The dairy season had been tough for farmers with a cold winter followed by wet conditions in the spring, when milk output peaked, and now a dry summer, he said.
Fonterra would review the operations of its processing plants as a result of getting less milk.