Dairy prices rocketed to a 21-month high at GlobalDairyTrade, led by the biggest rise in whole milk powder since 2010, amid growing concerns over the impact of poor weather on New Zealand production.

Prices of products overall at the auction jumped 10.4%, a rise beaten only once in the last two years, to their highest since June 2011.

Growth was led by whole milk powder, which accounts for the bulk of GlobalDairyTrade volumes, and soared by 18.0%, the quickest since the auction went to a twice-a-month schedule, in September 2010, from once a month.

The result restored to whole milk power a healthy premium over skim milk powder which reversed over the second half of last year, a factor attributed largely to a change in buying habits by China, a major dairy importer, which has little capacity itself for producing skim milk powder.

The whole milk powder premium, at $539 a tonne, was the biggest in two years.

'Very sharp correction'

"We have seen a very sharp correction of the spread between whole milk powder and skim milk powder," Kyle Schrad, risk management associate at INTL FCStone's dairy division, who noted the decline in whole milk powder volumes on offer.

Some 10,500 tonnes of whole milk powder were up for sale, compared with 18,500 tonnes at the last event, according to Agrifax, the consultancy based, like GlobalDairyTrade, in New Zealand, the world's top dairy exporting country.

Indeed, the volume decline comes amid talk of a drop in the level of New Zealand milk production far exceeding what might be expected during what is seasonally a period of weakening output.

"Whether the drop in volumes is down to New Zealand milk production falling – that is a debate going on in the market at the moment," Mr Schrad told Agrimoney.com.

'Pasture crash'

While statistics up to the end of 2012 have shown a continuing run of year-on-year growth in New Zealand output, the industry is awash with talk of a sharp decline in 2013, since drought hit the country's North Island.

"The talk is of double-digit declines in North Island production, although South Island is still producing strongly," Mr Schrad said.

Agrifax has reported a "crash" in its pasture condition index last month, saying that "conditions are too dry to allow pastures to grow in many parts of New Zealand".

Fonterra, the dairy giant which runs GlobalDairyTrade, said last week that while it had a "strong start" to 2012-13, with milk collection volumes running 6% higher than a year before, "the dry conditions mean we are currently forecasting total milk collection volumes to finish approximately 1% ahead for the full season".

New Zealand trade data show whole milk powder exports in January falling 6% year on year.