'Don't worry too much about price swings'

He says last week's GDT results, which saw prices drop was "not a particularly surprising result".

Futures pricing ahead of the auction was pointing towards a bigger drop.

"The price decline was actually a little less marked than we had anticipated," he says.

A 5.6% fall in whole milk powder (WMP) and an 8.6% fall in skim milk powder (SMP) drove the overall GDT price index down 5%, with fats falling by a smaller margin.

Keall says the New Zealand spring looms as the next key inflection point for the season.

"So we are not stressing too much about auction-to-auction swings in pricing," he says.

The bank is retaining its forecast milk price of $10/kgMS for Fonterra farmers.

Keall notes that there's little doubt that dairy prices are under pressure in the near term, with buyers a bit more hesitant than during some of the spicier auctions earlier in the year.

"But 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.

"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."

He adds that the picture at last week's auction was also complicated by Fonterra increasing the supply of product on offer.

"On that front, we're still focused on the supply fundamentals, which are extremely tight.

"EU milk collections for May - usually the peak milk production month - were exceedingly weak and decelerated further with the ongoing energy crisis, drought, rising input costs and other unfavourable on-farm economic headwinds weighing.

"Recent downward pressures on energy and grain prices will offer some relief for dairy farmers in the future, but global dairy production is a large tanker to turn around and the starting point for supply is weak."

Keall points out that the poor first half of the year in the EU means there is 325,000 tonnes less milk floating about from the world's largest exporter.

"We are tentatively optimistic that NZ milk production this season will be better than the last, but it's unlikely to be sufficient to offer much of an offset, particularly if the weather doesn't play ball - downpours have been heavy, pasture cover isn't and farmers have burnt through feed supplies during earlier drought conditions.

"Suffice to say we find it hard to see global dairy prices losing too much ground in this sort of environment and expect them to find support as the season progresses."