Today's high farmgate milk price is bringing back memories of the last spike.
In the 2013/14 season, a record $8.40/kg milk price prompted a supply rush.
The ensuing slump saw the milk price halve, sending heavily indebted farmers to the wall.
The question is, could Fonterra's forecast milk price, which the co-op last week upgraded to a $7.60/kg mid-point, prompt a similar reaction this time around?
Dairy finds itself in the middle of a commodities price boom.
The United Nations Food and Agriculture Organisation's (FAO) Food Price Index averaged 116.0 points in February 2021, 2.8 points or 2.4 per cent higher than in January, marking the ninth month of consecutive rises and reaching its highest level since July 2014.
The increase was led by strong gains in the sugar and vegetable oils sub-indices, while those of cereals, dairy and meat also rose but by a lesser extent, the FAO said.
The FAO's Dairy Price Index averaged 113.0 points in February, up 1.9 points (1.7 per cent) from January, rising for the ninth consecutive month and nearing a 40-month high.
The organisation said dairy demand had been underpinned by firm imports by China amid limited export supplies from Western Europe.
Fonterra's upgraded forecast compares with $7.14/kg last season and economists expect it to exceed $7.00/kg next season.
A milk price of over $7.00/kg for three seasons in a row will put farmers in a strong position, much to the relief of the Reserve Bank, which has in the past singled out high levels of debt in the sector as a risk to the financial system.
It's all positive stuff, but could there be a repeat performance of 2013/14?
Westpac agri economist Nathan Penny thinks not.
"We are in the middle of a sizeable dairy price spike, so it is natural to wonder what comes after," Penny says.
"What we saw last time was due to a shortage, a drought in New Zealand, urgent demand from China which was off the back in many ways of the melamine scandal, so that was at a time when China was not very diversified."
These days China has more supply options, so the current spike is likely to prove more temporary, he said.
"In New Zealand we saw a massive supply response at a time when the industry was going full steam ahead in terms of things like farm conversions - 150 a year.
"In the year 2013/14 year we saw a 10 per cent lift in milk production - the equivalent of adding the whole of Southland's production in one year," he said.
"There was a massive supply response and the supply response overseas was big too."
Back then, farmers were in a position to respond.
"They could intensify easily. They could borrow money fairly easily and also they did not have much competition from other land uses at the time, so it was pretty much one-way traffic - land use was essentially going into dairy."
So what is the supply response going to look like this time around?
Penny says a lot of those factors prevalent in 2013/14 are not present this time around.
Dairy conversions have stopped and in parts of the country, dairy farms are being put to other uses.
"Whether that is kiwifruit - forestry - urban creep or lifestyle blocks - there is quite a lot of land use competition going head to head with dairy for the same land."
Environmental constraints are also much tighter for local and overseas producers alike.
"Farmers will respond globally but we do not expect to see the response that we saw last time, and therefore, this price cycle we expect to be more moderate than the previous supercycle."
Will farmers in other countries race to capture higher prices?
"At the margin yes. There is the potential ability there for them to lift, but there is not the ability to double production growth, for example.
"There is not the ability there to really go hard and fast as they did in 2013/14. So that's where the key constraint is.
"We think prices will moderate over time, but will not go back to where farmers are losing money again."
Penny's forecast for 2020/21 is close to $8.00/kg and above $7.25/kg next season.
In any event, most dairy farmers would be happy with a price north of $7.00/kg.
"Yes, there is going to be a cycle - this won't be permanent - but we think this will be a moderate cycle relative to the previous one," Penny says.
Rabobank dairy analyst Emma Higgins doesn't think there will be a huge supply response to current high prices.
New Zealand milk producers have enjoyed the lift in commodity prices more so than their competitors overseas, she says.
"Second, in addition, there are some more challenging supply conditions in the northern hemisphere, which is where the flush of milk is going to come from over the next few months."
Higgins says the key issues facing northern hemisphere farmers will be the weather, margin pressure and high feed costs.
"Those dynamics alone make us think that there will be modest production growth expectations over the next 12 months.
"We are not going to see a huge wave of milk coming over the line really quickly," she said.
Will high prices last?
Higgins agrees with Penny in as much as there will be a downward price correction from current high levels.
"It's just a question of timing and the dynamics in China and how they pan out," she said.
And when the price correction does come, Higgins expects a soft landing.
"We think that we are going to see a supportive milk price for the next season, in addition to the elevated prices that we are seeing for the current season," she said.
Strong demand out of China is causing prices to rally but Higgins says the PRC will become more self-sufficient in time.
"China does have a growth mandate to increase their national herd.
"We think that there is going to be another 20 per cent increase in their herd over the next three to five years," she said.
"But for now, it is fabulous news for New Zealand producers."
Rabobank has lifted its farmgate milk price forecast by 80 cents to 7.80/kg for the current season.
Higgins said while China's import demand is expected to remain elevated over the short term, there are signs it could slow in the second half of the year.
"High Chinese milk prices are driving China's interest in expanding its domestic milk production, which could reduce import needs in the future," she said.
"The high milk prices favoured imported wholemilk powder early in the year, but that demand could see a pause following a recent spike in Oceania prices."
Dairy is the most indebted of all the agriculture sectors, but farmers - aided by firm dairy prices - have been chipping away at it.
Latest data from the Reserve Bank shows dairy debt came to $38.8b by December 2020, down from $40.4b in December the previous year, and from $41.5b in December 2018.
However, the Reserve Bank, in last November's financial stability statement, said there were still a number of dairy farms that remained financially vulnerable.
"This is particularly significant as some dairy farms remain highly indebted after experiencing two downturns in the last decade, and require a high milk price just to remain operational," the bank said.