It seems like an age since the wave of high dairy prices on the GDT.

March 1 was the last serious rise, at 5.1%. Since then, eight out of the nine previous auctions were negative, apart from a small 1.5% lift on June 22.

No one seems to be panicking, though, probably because it was coming off such a massive high and a correction was inevitable.

NZX dairy insights manager Stu Davison says extra volumes and expectations of market pressures on consumers created a market that expected – almost needed – prices to fall significantly lower.

Since that March 1 auction, overall prices have fallen 23% and whole milk powder prices, 25%, according to Westpac’s Dairy Update.

It had expected a 4% fall in WMP prices, and the futures market pointed to a fall of about 6% prior to the auction. It highlighted a weakening in global dairy demand and a softening of the Chinese economy as the reasons for the fall.

But the latter is expected to be temporary as the country lifts its covid restrictions.

This bullish outlook has seen ASB retain its $9.25/kg milk solids forecast. ASB has kept its $10/kg MS forecast due to tight global milk supply.

It too is taking the price slide in its stride, saying in its Commodities Weekly publication that it is not stressing too much about auction-to-auction swings in pricing, instead waiting to see what happens in spring.

While prices are under pressure, last season followed a similar trajectory with buyers cautiously on hold over the winter before normal service resumed when it became clear global production was still stuck in a rut, it said.

“That’s no guarantee the same will happen this season, but it’s a good reason to be focusing on the market fundamentals at this point in the season, and not only the fortnightly auction moves.”

Fonterra too appears to be taking a long-term view, lifting its new season opening price on June 23 by 50 cents to a mid-point range of $9.50/kg milk solids. Likewise, Synlait matched that forecast on July 6.

Fonterra has retained a wide forecast range of $8.75-$10.25/kg MS, giving it a good buffer if the slide in values continues, forcing a correction.

Chief executive Miles Hurrell said at the time it reflected the high level of uncertainty that came from operating in a globally traded volatile market.

Global supply looks like it will remain tight as high input costs continue to keep a lid on production in the northern hemisphere.

According to ASB, EU milk collections over May are weak, reflecting the ongoing energy crisis, drought, rising input costs and other unfavourable on-farm economic headwinds.

“The poor first half of the year in the EU means there is 325k tonnes less milk floating about from the world’s largest exporter,” it said.

Similarly, in New Zealand production was down 4.1% across all of last season and down 6.5% in May. In Australia production was down -5.9% over the past three months.

The one glaring concern is the ongoing impact of input prices on squeezing farmers’ margins. This was hit home in agricultural consultancy company AgFirst’s annual financial survey of 25 dairy farms in the Waikato and Bay of Plenty regions. It forecast a break-even payout of $8.44/kg MS.

This is the payout farmers require to meet basic on-farm expenditure and it’s not too far away from the low end of Fonterra’s forecast range. Feed and fertiliser costs led the way on these input hikes, up 19% and 30% respectively.

It was, the survey said, a major concern because it continues to reflect ongoing on-farm cost inflation, which has run at twice the level of the consumer price index over the past five years. The increase in expense is also starting to impact confidence, something which is highlighted in Rabobank’s latest quarterly rural confidence survey.

It shows that farmer confidence is at its lowest level since the start of the covid-19 pandemic in early 2020.

It’s not all bad heading into spring. One small positive for farmers in the dairy stronghold of Waikato is that the recent rain over the past month looks to have gone a long way to replenish soils and water tables after the drought.

A good, early spring would really help set these farmers up for the season with supplementary feed supply and prices tight and high.

The subsequent production would also provide a good indicator for the market fundamentals for the season ahead.