Cautious outlook for dairy industry

Milk flows in Gippsland are 2.2 per cent lower than last year according to latest Dairy Australia regional indicators.
An industry analysis was released in Dairy Australia's latest Situation and Outlook report, which showed strong retail demand and a higher farmgate milk price were offsetting rising input costs and global price shifts.

The report indicated a cautious outlook for the second half of the 2025/2026 season, with Dairy Australia industry analyst Madelyn Irvine indicating that while retail sales were stronger and farmers were enjoying higher relative farmgate milk prices, rising costs remained a challenge.

"Retail demand has been resilient and milk prices are higher; however, the combination of rising costs and challenging seasonal conditions continues to put pressure on farm businesses," Ms Irvine said.

"Improving weather conditions could provide some upside, but cost management will be critical to stabilising production, with ongoing volatility in fodder markets continuing to weigh on farm margins."

Dairy products continue to perform well at the supermarket, underpinning higher farmgate milk prices.
Volumes sold grew across the milk (up 1.1 per cent), cheese (up 3.8 per cent), and yoghurt (up 8.4 per cent) categories, with yoghurt increases particularly driven by nearly 15 per cent growth in Greek yoghurt sales. However dairy spreads eased slightly (down 0.9 per cent).

The total value of dairy sales also increased, with more shoppers choosing private label products as cost-of-living pressures linger, and consumers no longer seeing them as lower quality compared to branded products.

"Shoppers' buying habits have shifted, with affordability concerns confirming price as a key driver of consumer behaviour.
"As buying habits have evolved, consumption of private label dairy has become normalised, and this will continue to shape future growth."

The report confirmed the previous forecast of a two per cent decline in Australia's milk production in 2025/2026, owing to a smaller national herd following a challenging 2024/2025 season, and tight farm margins and unpredictable weather continuing to put pressure on profitability.

"National milk production is down 2.3 per cent year-to-date, driven by dry conditions, high feed costs, and farm exits," Ms Irvine said.
"While gains in Queensland, New South Wales, and Tasmania have provided some offset, overall volumes remain subdued as Victoria, South Australia, and Western Australia recorded declines."

The report also revealed the impact of last season's challenging conditions on farmer profitability, with the latest Dairy Farm Monitor Project data showing reduced returns over the 2024/25 season in Victoria, South Australia, and Tasmania.

However, New South Wales and Queensland recorded marginal improvement, supported by strong milk prices, and Western Australia saw improved profitability after a difficult 2023/24 season due to better seasonal conditions and stronger livestock trading returns.

Australian export prices have softened in line with global trends but remain higher relative to other exporters due to constrained supply. US tariffs and European shipping delays are fuelling uncertainty in global trade, while demand for Australian dairy has steadied in key markets, including Greater China and Southeast Asia.

Ms Irvine acknowledged that although dairy had demonstrated resilience through steady retail growth and early-season export gains, the outlook remains complex.
"Global price shifts, climate uncertainty, and elevated input costs will continue to test profitability," Ms Irvine said.

"A higher farmgate milk price may provide some relief, but sustained improvements in seasonal conditions and cost management will be critical to stabilising production," she said.