United Dairyfarmers of Victoria president Paul Mumford has called on milk processors to continue pushing up farmgate prices, which are now at record levels.
Mr Mumford said input costs were a major issue for farmers so high milk prices were needed.
"The milk price desperately needs to continue on its upward trend," he said.
"The Dairy Code of Conduct comes into effect in early July, so there is still time for the processors to finalise their prices.
"But it's extremely encouraging for the processors to finally understand they have the ability to stop some of the tide of exits from the industry."
Most processors have already announced their opening price for the coming season, as part of the federal government's Dairy Code of Conduct.
All processors are offering more than $8 a kilogram Milk Solids, with several setting a price of greater than $8.50/kg MS.
Fonterra Australia announced a weighted average of $8.25/kg MS, while Lactalis sits near the top of the tree at $8.80/kg MS.
Bulla Dairy Foods has announced most of its more than 200 suppliers will get between $8.70-$8.90/kg MS, while Saptuo has announced an opening price of $8.50/kg MS.
It last stepped up to $7.25/kg MS in March this year.
Australian Dairy Farmers Corporation has set a minimum milk price of $8.40/kg MS from July to December and $9.20/kg MS from January to June.
Bulla dairy and procurement general manager Rohan Davies said processors were operating in a competitive milk market and the company was happy farmers were seeing the benefit of current market conditions.
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Mr Mumford said if processors wanted a dairy industry into the future, they were "front and centre" of price negotiations.
"Processors have to send the right signs to the dairy industry," he said.
"There is a lot of competition out there but rightfully so.
"It's needed - because of input costs and because of the future of the industry.
"There is still another month before prices are locked in, so no doubt we will still see a lot of balancing in prices.
"The circus is not over yet."
He said he would not be surprised if prices surpassed $9/kg MS.
"The interesting point is every farmer will, of course, have increased input costs, whether it's labour, power or whatever it may be," he said.
"It's our responsibility to maximise the profit we can get from milk price and those costs - that's the challenge we have.
"Those profits will also affect whether the dairy industry grows or subtracts."
Supply shortages
Freshagenda director Steve Spencer said supply shortages had been in place since last year.
"Value milk has gone up a lot, because of the tighter supply globally - that's not a new setting, it's been going on for months," Mr Spencer said.
"They (the processors) are just reflecting that."
He said it wasn't just the war in Ukraine that was causing this.
"There's pressure on milk supply in New Zealand, in Europe - part of it is the weather, and higher feed costs and the Ukraine war kicks into that situation, while the US is also slow," he said.
"The milk produced by the top four - US, Europe, NZ and Argentina - is down and has been since late last year and is going to stay down."
He said there had also been an increase in input costs.
"Fertiliser is well up, grain prices are rising quickly and you have labour shortages," he said.
"Margins are still under pressure, no matter what the milk price is doing."
He said farm exits and reduced stocking rates, due to a "red-hot beef market" were also having an impact on production.
Record prices
Rabobank senior analyst Michael Harvey said companies had started providing minimum opening prices at record levels in March.
Fertiliser is well up, grain prices are rising quickly and you have labor shortages - margins are still under pressure, no matter what the milk price is doing.
- Steve Spencer, Freshagenda director
"The timing was a record and the pricing was a record, across the country," Mr Harvey said.
"When the global market lifts the commodity basket for southern Australia, that lifts the milk price for everyone."
There was not a lot of stock in global markets and the cost of producing milk was rising quickly in all regions, he said.
"Like Australian farmers are seeing, European, New Zealand and US farmers are all paying more for their feed, fertiliser and fuel.
"Even the weather conditions aren't great, so it's a combination of all those things."
High opening prices would be good for cash flow, to allow farmers to budget and prepare for a season that would see higher costs.
"We are cautioning even with a 15 per cent increase in the milk price, a big chunk of that is going to be eroded in margins," he said.
'We think farmers can still be profitable,' he said
"But if you don't do some proper budgeting and planning and put some risk management around your inputs, your margins might be lower, not higher, even though you are getting a record high milk price."
He said farmers should be cautious about prices going higher, in the new season.
"There is so much uncertainty and turbulence, because you have still got the war in Ukraine, you still have China in lockdown and supply chain bottlenecks everywhere," Mr Harvey said.
He said processors wanted to send a strong price signal, to reduce milk supply losses.
"They would like to see the milk pool stabilise, but they can only do so much with the milk price," Mr Harvey said.