March 22 2013 07:00 AM

Whole milk powder is soaring as the effects of its drought emerge.

Drought in the world's largest dairy exporting country is igniting global dairy product prices and boosting the outlook for milk prices in the U.S.

America wasn't alone in experiencing a near-historic drought in 2012. But since New Zealand's summer doesn't begin until after ours ends, the scope of its drought has only recently started to become clear. And as it has, world dairy markets have reacted with panic.

Some New Zealand press reports are calling the current drought the worst in 30 years. Many dairies, virtually all of whom pasture cows year-round and have little or no irrigation, have dried off herds from one to three months early. Livestock owners of all kinds are reportedly no longer looking at production levels because they have shifted into "survival mode."

In a report issued last week, Rabobank International said the drought could slash New Zealand's milk production by 15 to 20 percent for the first nine months of 2013. The government has already declared the entire North Island, which produces about 60 percent all milk in the country, a drought area. Parts of the much wetter South Island have also requested to be designated a drought area.

The drought's effects have set whole milk powder (WMP) prices on fire on the world market and are pushing U.S. Class III futures prices higher.

At the March 5 Global Dairy Trade (GDT) auction, WMP for May delivery soared over 19 percent to $4,343 per metric ton ($1.97 per pound). On March 19 it shot up 21 percent more to $5,116 ($2.32 per pound), a nearly five-year high. Cheddar cheese jumped 13.7 percent to $1.96 per pound.

Class III futures in the U.S. are surging as a result. On March 1 the average monthly price from June through December was $18.11 per hundredweight. On March 19 it was $18.80.