Dairy farmers are set to see a boost in their income as the two overseas giants that now dominate Australia's milk industry slug it out, a new report says.
Strong competition between dairy giants Saputo and Fonterra for milk supply is expected to boost the price farmers receive for their milk next year, says agribusiness banking specialist Rabobank.
Rabobank says low prices for dairy commodities will likely result in a lower base farmgate milk price but strong competition for milk supply will result in higher premiums flowing to farmers.
Canadian dairy processor Saputo will try to claw back milk supply lost by its newly acquired Murray Goulburn, which suffered an exodus of farmer suppliers when it unexpectedly slashed its what it paid farmers in April 2016.
Rabobank says smaller, newer dairy players also will be trying to secure milk supply.
"At the frontline of this battle are the two large international companies butting heads over milk supply as Saputo looks to win back milk supply and Fonterra maps out capacity expansions," Rabobank senior dairy analyst Michael Harvey said on Tuesday.
Rabobank expects a base farmgate milk price of $5.40 per kilogram of milk solids in 2018/19 - down slightly from $5.60/kgMS, with prices likely to be conservative at the start of the season but improve over the following year.
Mr Harvey said the higher prices to farmers are unlikely to push up the retail price of milk in the near term.
With consumers already facing higher living costs, supermarkets were pushing their own private labels to keep prices low.
"There's nothing to suggest that we're going to see a big jump in retail prices," Mr Harvey said.
"You will see, with the Saputo acquisition of Murray Goulburn, a change of ownership of brands at the retail shelf, but in terms of the product offering or the price, I wouldn't think there will be any major changes in the short term."