China worries looming, say Thomas Elder Markets analysts.

He was presenting to the first United Dairyfarmers of Victoria conference, in Melbourne, in 36 months.

"Fertiliser is at record levels and largely that is off the back of Putin's invasion of Ukraine, which has caused gas prices to increase even further," Mr Dalgleish said.

"Diesel is the same, it's gone up because of Putin; chemicals have gone up for the same reason, because they're based on energy."

The invasion of Ukraine also blocked a 'huge proportion' of the world's exportable surplus of wheat, barley and canola.

"You have the US and Canada going into drought so you are going to be paying high prices, not forever, but at least for all of 2022," Mr Dalgleish said.

"Technically Australian wheat and barley prices are the lowest in the world, so you could be paying a lot more if prices start to reflect international values."

Mr Dalgleish said 'we (TEM) had 'got it wrong' over the invasion of Ukraine.

"But I think a war-based scenario with China is even less likely than what we have seen in Ukraine," Mr Dalgleish.

"The biggest situation from China, from my perspective, is the economic implication of this shutdown they are going through now.

"I think the way the Chinese government is pursuing this COVID-zero policy is going to have an impact on their economy.

"I don't think they are going to back down from it, so I have some concerns as how that will play out."

There was also the likelihood of rising interest rates in the US and the chance they may go into recession in the next 12 months.

"You could have the possibility of a weaker economic situation in China and the US which is never a good thing for a commodity like dairy."

Fellow TEM analyst Andrew Whitelaw said China was "a massive enigma.

"You can't really predict what they are going to do, on a political level, and so there is going to be massive uncertainty."

"What happens in China is always going to have a massive influence on us, some positive, some negative."

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Dairy Australia Industry Insights and Analysis manager John Droppert told the conference apart from commodity cycles, the sector also faced some interesting patterns during its history.

"We started the dairy industry close to the time of the First Fleet, we brought a couple of dozen cows over, and the story goes they all escaped," Mr Droppert said.

"You can't get more sub-scale than that - and there is a lot of discussion now, around the country, about whether our industry is sub-scale, whether it does have those efficiencies of scale and whether the industry commands enough political clout, to get the policy settings it needs."

Plant-based competition had been with the industry for "a very long time.

"The dairy industry has been fighting that for a very, very long time."

"It's an ongoing challenge, but its certainly not a threat, conceptually."

In the 1920's the commonwealth government was involved in industry regulation.

"At the time it was about trying to get on top of those butter traders, who were flogging butter on the streets of London and be a bit unscrupulous about it, undercutting each other, so the government got involved to try and straighten that out.

"That let to a very long period of consequently straightening out some of the impacts of that first straightening out."

During World War Two the 'butter bounty' was introduced and lasted until the early 1970's.

In 1973, Britain joined the Common Market.

"That made 50 per cent of farms in the Australian dairy unviable.

"We are starting to see some common themes - there are some challenges there, we feel like we've seen before."

The 1970's were a real turning point.

There was a realisation that a lot of the industry wasn't viable, 'giving the new settings that we were seeing, exclusion from the British market in particula.

"We actually tipped into this period of governments winding back support, rather than ramping it up'.

There was then an increasing focus on competition and liberalised trade policy.

Farmer ownership of assets had also 'very much retreated'.

While Mr Droppert said the introduction of the Code of Conduct was 'not quite' 1924 again, the industry was starting to see a little bit of a ' toe in the water' when it came to governments and market function.

"Maybe we won't let just everyone to themselves, to do whatever they want, there are some regulatory guiderails around that.

"That's an interesting little uptick and it will be interesting to see if it leads to something more cyclical and there is a repetition of that cycle."

Globally, dairy supply was very tight and demand had held up and was strong.

But he agreed with Mr Dalgleish and Mr Thomas logistics challenges, the war in Ukraine and inflation would all have an impact on markets.

"We live in some very interesting times, at the moment, between the pandemic and war.

"I think someone said, the other day, 20 per cent of the world's cargo ships are waiting off the coast of China.

"That's causing havoc for logistics and global trade patterns."

Chinese milk production was growing, but consumption of fresh dairy was declining.

"People are eating what they can get, not what they are choosing, in these lock-down areas, which are spreading."

Producers should be aware of what was happening in China.

"I think there is some potential volatility there in one form or another."

But he said none of the challenges were all that new.

"We have seen these themes recurring, we have seen things work and seen things not work."

"I don't find it all that scary, once we have seen how much commonality there is there, how much history there is there."

He said he wasn't making light of the challenges the industry faced, as they were very real.

"But there are precedents."

Mr Whitelaw told the conference there were two 'scary things', which faced market analysts.

"The scariest thing as a market analyst, is when someone says to me this is the new norm, it's the most dangerous thing because it's never the new norm.

"We always get told wheat and dairy prices are never going to fall, inevitably they do."

He said the other 'scary thing' for analysts was when the mainstream media started talking about agricultural markets and that they were about to crash.

"They get it wrong, all the time."

He said the worst of times should be the best of times.

"The drought will return, farmer numbers will decline, but opportunities come from that."

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