Drought in NZ sends global milk prices soaring

Global milk prices have soared to a record high as New Zealand's worst drought in decades drains growth and conditions limit output in Australia and elsewhere.

Any impact for Australian consumers, though, may be limited for now, Rabobank analyst Michael Harvey says.

Whole milk powder prices for May delivery jumped almost a quarter from the previous auction to $US5313 ($5118) a tonne, about 50 per cent higher than a month earlier, GlobalDairyTrade, an industry website, said.

New Zealand, which exports about 95 per cent of its milk output, has declared the whole of North Island to be in drought, and conditions aren't much better on South Island. Milk volume growth from the world's biggest exporter may slow to just 1 per cent.

Australian farmers are yet to benefit from the increase in prices because near-term contracts have already been locked in for most producers, Mr Harvey said.

Many local producers are also battling poor conditions of their own - with the south-eastern and south-western parts drier and hotter than usual over recent months. Many dairy regions in northern NSW and southern Queensland have also been hit by floods.

"You've had unfavourable weather from Christmas right through until where we are now," Mr Harvey said. Production figures for last month and this month "are not going to be too pretty", he said.

Australian dairy farmers have complained their industry has been one of the main losers in a price war on staples between Woolworths and Coles.

Profit margins should start to rise for farmers because of higher milk prices and also if feed prices start to retreat. But much depends on the US corn crop and how much of it bounces back from last year's severe drought.

Another factor is China's booming demand for milk imports. Concerns about contamination of local produce resulted in its imports rising 30 per cent in the final three months of last year and 68 per cent in January, from a year earlier.