There is too much milk supply available globally that Dairy Australia warned Aussie farmers to expect a 10 per cent to 15 per cent drop in milk prices in 2013.

The market and research organisation for the country's dairy industry urged dairy farmers with expanded herds to take advantage of recent high prices until the situation remains favourable to milk producers. Dairy Australia explained the glut of supply to the end of the drought in Australia which led to higher milk production.

"We've got too much milk to deal with at the moment, so certainly in the U.S., where feed costs are still quite high, their margins are under particular pressure," ABC quoted Joanne Bills of Dairy Australia.

"In Europe as well, they're starting to get very sharp drops in farm gate prices and the New Zealand prices will be a fair bit lower," Ms Bills added.

Dairy Australia, in its 2012 report, said milk sales went up 5 per cent, yoghurt sales grew 4 per cent and butter and butter blends increased 9 per cent in the March quarter.

Milk production in Australia peaked at 9.5 billion litres this year due to favourable seasonal conditions. It is the highest level of production in 10 years. Average yearly milk production by a Victorian cow was estimated at 5,882 litres, almost twice the 3,012 litres recorded in 1979-80.

Ms Bills attributed the spike in demand for butter to the influence of cooking shows such as MasterChef which has recipes that use a lot of oleo in its ingredients.

Dairy farmers have also complained of the price war between Coles and Woolworths which has caused a drop in milk prices.

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