Tighter milk production, coupled with better product returns, is expected to bring higher farm gate milk prices for the upcoming season.
The latest Dairy Australia Situation and Outlook report says high operating costs will, however, continue to challenge profitability for the 2025-26 season, particularly if extreme weather conditions in many dairy regions do not improve.
“Higher product returns and tighter milk supplies will likely support an increase to farm gate milk prices next season,” Dairy Australia’s analysis and insights manager Eliza Redfern said.
“However, operating costs are rising, and the weather outlook is unfavourable leading into spring,” she said.
“Retail price pressure and global trade uncertainties add to the complexity of the outlook.”
While US tariff announcements have exacerbated global trade uncertainty, Australian dairy export prices have remained resilient.
The report warns that if tariff disputes escalate, the challenge for Australian dairy will be maintaining a strong position against potential displaced product and navigating any economic impacts in key export markets.
Changing trade flows could, however, also present opportunities in some international markets.
“Tightened milk production and higher export pricing from key Northern Hemisphere exporters initially increased orders for Oceania products this season, as global demand somewhat recovered,” Ms Redfern said.
“While recent US trade policy announcements have resulted in some buyers looking to secure product from non-US exporting regions, such as Australia, others have been attracted to weakened US pricing.”
On the domestic front, dairy continues to perform well in the retail market, supported by behaviour linked to inflation and emerging consumer trends.
In the 52 weeks to February 23, volumes sold of milk (up 0.7 per cent), dairy spreads (up 3.3 per cent), cheese (up 4.2 per cent) and yoghurt (up 8.4 per cent) all increased, supporting total value growth.
However, with ongoing cost-of-living pressures, the potential for further price easing could limit future value growth.
“Consumers are increasingly purchasing private label products, and focusing on ‘right-sizing’ products to minimise food and financial waste,” Ms Redfern said.
“Increased in-home consumption has also supported the rise of social media as a recipe source.”
Australia is on track to maintain a national milk pool of 8.3 billion litres this season, but lingering climate impacts, margin pressures, and a lower appetite for farm business growth may result in easing milk production for the 2025-26 season.
Dairy Australia currently forecasts a zero to two per cent reduction in national milk production for next season, likely dropping to around 8.24 billion litres, however, it is a rapidly developing situation.
The report also highlights the results of Dairy Australia’s 2025 National Dairy Farmer Survey, showing that lower incomes, challenging weather, and changes in the processing landscape have negatively impacted farmer sentiment.
Climate remains the biggest concern, with 69 per cent of farming businesses reporting the effects of extreme weather.
“Concerns about climate, input costs, and milk prices have all increased this year,” Ms Redfern said.
“Climate remains the greatest concern, with nearly 70 per cent of farmers affected by extreme weather.”
The report also includes insights from the Dairy Farmland Values report commissioned by Dairy Australia, which indicate that high farmland prices are having a significant impact on exits from the industry as well as creating a barrier for new entrants.
For more information and to view the latest Situation and Outlook Report, visit: https://dairyaustralia.com.au/sando