Fonterra's board will have reason for cautious optimism when it meets tomorrow to review its farmgate milk price forecast for 2014/15, as evidence builds that the supply/demand imbalance that hammered the market last year has started to correct itself.
The impact that drought throughout much of the country is having on production is also likely to be high on the agenda at tomorrow's board meeting.
Dairy prices, after plummeting by 50 per cent last year, look to have turned the corner, with each of the last five GlobalDairyTrade auctions showing price improvements.
Last week, prices were up by 10.1 per cent in the fortnightly dairy auction. Encouragingly, product increases were seen across the board.
Also on the positive side, it appears that Northern Hemisphere farmers are responding to lower prices, and have tapered off production accordingly. However, the effects on the market of the end of quotas this April on production in Europe remains the great unknown.
While there is confidence that Fonterra's $4.70 per kg of milksolids price forecast for this year will be met, or perhaps improved upon, prices remain well below the estimated $5 per kg average cost of production.
As the current season draws to a close, the market's focus is turning to 2015/16, although Fonterra is not expected to comment on next season's prospects this week.
Thanks to the way Fonterra pays its farmers, last season's record payout has helped smooth incomes and soften the blow of sharply lower prices this season.
Taken together, the average of the two seasons' farmgate milk prices comes out at a reasonable $6.55 a kg.
New Zealand is the world's largest exporter of dairy commodities, representing about one third of international dairy trade each year, so drought-affected production domestically matters greatly to the supply/demand dynamic.
The accepted wisdom is that the sector can handle one bad season, but two together would be a problem for many farmers. Rural economists expect next season's milk price to bounce back to over $6 a kg.
"Prices are consistent with them delivering on $4.70 now, but maybe there is some upside going into the end of the season," said ANZ rural economist Con Williams.
Previous droughts have seen per tonne milk powder prices jump to the US$4000s.
"We see a more modest increase to US$3800 per tonne given that we still think that there will be a weaker demand backdrop from the major importers," he said.
Williams said there was a risk the drought could induce a price spike, followed by an equally sharp fall, over a short space of time compared with the normal commodities cycle.
While there are signs of improvement, risks remain.
A decline in dairy demand from those countries who are dependent on oil prices, destabilisation of the market as a result of Russia's ban on dairy imports from the West, lingering questions about demand from the world's biggest dairy importer - China - and the abolition of Europe's quota system in April will all serve to remind Fonterra that all is not well on the global stage.
Having accumulated significant inventories in late 2013 and early 2014, Chinese imports have fallen back to low levels, according to HSBC.
"As inventories start to normalise, we expect a gradual ramp up in Chinese imports this year to rebuild stocks," the bank said.
"The 2015/16 season should see improved conditions, given our expectation of a recovery in dairy prices. We remain optimistic about the medium-term outlook for Chinese dairy demand."
Tomorrow's meeting could see Fonterra update the market on the milk supply outlook for the last three months of this season. Williams said: "Things look to be moving aggressively lower and now tracking behind the same time in 2012/13, which was also drought affected."