The co-operative's managing director, Gary Helou, reiterated its previous guidance of $6.05 a kilogram milk solids for this season on Monday. But he warned that could slide to $5.60-$5.90 a kilogram if global prices for key dairy commodities did not improve as expected.

"Murray Goulburn will continue to monitor the situation closely and will update the market as soon as circumstances materially change," the co-operative said in a statement.

Murray Goulburn's $6.05 a kilogram price forecast formed a key part of the listing of its non-voting trust on the ASX last month. The trust's dividend is tied to the milk price, therefore if the milk price tumbles, so does the investor payout.

The world's biggest dairy exporter, Fonterra, told Fairfax Media last week Australian farmers were being paid too much for their milk. Fonterra chief executive Theo Spierings said the Australian farm gate price did not reflect the global dairy rout and called for an "honest debate about what is being earned in the market".

Price defended

Murray Goulburn set the farm gate price in June, opening the season with $5.60 a kilogram milk solids, which Fonterra and others have matched.

Mr Helou defended the price and the co-operative's $6.05 forecast – which if realised will be the first time farmers have been paid more than $6 a kilogram of milk solids for the three years straight.

"We're paying our farmers … what we can afford to pay them and this year [2014-15] it was $6 plus net profit after tax of $21 million," he said.

"Our gearing is conservative at 14 per cent, pre IPO, which is comfortable given this business is in an investment cycle."

At midday, Murray Goulburn's shares had jumped 5.8 per cent to $1.96.

While most dairy processors have opened with what they say is a "strong" price at $5.60 a kilogram, dairy farmers are still hoping for step ups, or price increases throughout the season.

Costs of production

Australian Dairy Farmers president Noel Campbell told Fairfax Media last month that most farmers operated on a $5 to $5.50 a kilogram milk price to cover their costs of production.

"As a dairy farmer, we have got to be careful in the next 12 months as to how we operate our business," Mr Campbell said.

"There isn't much of a buffer there. What happens in the next 12 months in respect to international prices will dictate if there is any possibility of step ups for the year."

In New Zealand – where Fonterra has a monopoly and up to 95 per cent of its total milk production is exported – the farm gate price has plummeted from an average of $NZ8.65 ($7.81) to $NZ3.85 in the past two seasons.

At the same time, whole milk powder prices have dived from $US4999 ($6957) to $US1856 a tonne, while skim milk powder has plunged from $US4780 to $US1521 a tonne, according to Global Dairy Trade figures. Russian trade sanctions and weakening demand from China has led to an oversupply of dairy products on global markets.

Shift in focus

Mr Helou said Murray Goulburn was "achieving strong growth in the face of a strong decline" in commodity prices. He said this was because the co-operative was shifting away from producing commodity products, which now account for about 30 per cent of its total production, and had not sold anything on the Global Dairy Trade auction since 2013.

Murray Goulburn's revenue fell 1.5 per cent for the 12 months to June 30 to $2.87 billion. Mr Helou said growth in dairy foods, such as UHT, consumer cheeses and fresh milk, partially offset a decline in commodity prices, with sales rising 29 per cent. Its nutritionals business, which includes infant formula, meanwhile surged 34 per cent.

The company spent more than $120 million in the past year upgrading its factories so they could produce more value-add consumer products and less bulk goods.

"All our dairy foods assets, UHT, fresh milk, cheese, consumer powders, nutritionals are flat chat producing value add to capacity, as well as disciplined cost control in the business. That leads to the $6.05 forecast for this year."

Murray Goulburn's net profit for the year, although ahead of its prospectus estimates, fell 27.5 per cent to $21.2 million.

Lift expected

Mr Helou predicted global dairy prices to lift in the year ahead, as big exporting countries New Zealand and the US reduced supply.

"We think the market has bottomed," he said, adding that he expected a modest lift in the next six months.

"As well as that, foreign exchange has worked in our favour. It's dropped to a lot lower than expected."

Murray Goulburn will pay its farmer shareholders a dividend of 9¢ a share, a 12.5 per cent increase on 2014. Unit holders in its listed trust will not be eligible for the payment.

"If declared, the distribution to unit holders with respect to the first half of FY16 is expected to be paid in March 2016," the company said.