New Zealand is set to produce a record breaking volume of milk this year.

Industry giant Fonterra is forecasting a much higher price for Farmgate Milk this season, which dairy analysts say will be followed by a two to three per cent growth in milk production.

Last season was hampered by extreme weather, which should result in a bounce-back in production.

"It would give us somewhere close to twenty 22 billion litres of milk, which would put us on par with the record season that we had in 2014-15," Rabobank's Emma Higgins says.

Higgins argues the increase she's predicting puts the industry on par with the last record season - however that comes with heightened international competition.

"We do need to be mindful that while New Zealand's supply is growing, so too is European supply, and that from South America as well," she said.

"The market will need to absorb that milk."