Tim Hunt, a co-author of the report and Rabobank senior analyst, said international prices had deteriorated this year as demand fell.

This was due to rising retail dairy prices, the economic downturn and a rising American dollar pushing down $US-denominated prices.

Mr Hunt said negative forces would weigh on dairy prices in the near term, although the declining Australian dollar had offset falling $US prices.

"However, forward selling and the near-impossible task of hedging amidst extreme gyrations in currency markets will almost certainly mean that few exporters will fully benefit this season from the recent collapse of the currency," he said.

Mr Hunt said dairy would start to recover late next year due to an improving economy, increased demand as retail prices fell, and demographic and cultural trends favouring dairy consumption.

More people were aware of dairy, wanted to consume it "and can afford to do so".

"The world's dairy producers can match this demand growth, but only at the right price," he said.

Mr Hunt said even with a rise in prices, the industry should expect volatile price swings.

"In the medium term, we expect to see more frequent shocks to the demand and supply side of the market," he said.

This would be caused by greater volatility in the cost of grain and fertiliser, climate change and the more prominent role played by less stable import and export regions such as China and Brazil.

Mr Hunt said in Australia, farmers in export regions would need to manage volatility.

"While milk prices are expected to trade in a higher range in the medium term … farmers will have to manage a higher cost base to ensure margins are not eaten away," he said.

Dairy processors would have to maximise value from a slow-growth milk pool and stay ahead of new exporters, he said.