The Dairy Australia Mid-year Situation and Outlook Report 2026 also confirmed a strong turnaround in milk production through season 2025-26, supported by a decent autumn break.
Milk production, which was down 2.4 per cent year-on-year in October, improved to 0.7per cent down by March. Production over the remainder of FY26 is expected to be solid, driven by improvements to pasture conditions and soil moisture in the latter part of the season.
Dairy Australia Analysis and Insights manager Tom Youl said while well-timed rain in February and March sustained late season pasture growth, reducing the urgency of fertiliser requirements, price rises and supply disruptions will be felt more acutely in season 2026-27.
“Farmers will face margin and cashflow pressure with input cost and broader supply chain price pressures from fuel and fertiliser expected to remain a factor heading into the new season,” said Mr Youl.
“However, although the outlook for on-farm impact remains highly variable, there are positives for farmers heading into the outlook period, with fuel price signals pointing downward and national stockpiles increasing from early-March.”
Against this backdrop of uncertainty, Dairy Australia projects a two per cent decline in milk production across the 2026-27 season, within a range of 1-3 per cent.
“External factors will be the driving influence behind production next season – a timely resolution to the Middle East conflict and favourable weather conditions could see production ease by one per cent, however it could fall by as much as three per cent if elevated input costs are sustained over the year,” Mr Youl says.
“On balance, we are projecting a two per cent decline over the season.”
The milk production turnaround through the 2025-26 season is reflected in the latest National Dairy Farmer Survey results, which revealed heightened optimism for the future.
The number of farms reporting they are in ‘expansion’ phase rose to 26 per cent, up 8 per cent from last year, with a further 38 per cent of farms increasing their herd size in the past 12 months.
The survey was conducted from approximately 16 February to 10 March, with most responses recorded prior to the beginning of the latest Middle East conflict, although there was little shift in sentiment in responses received after 1 March. However, further evolution of the conflict since then is likely to influence farmer sentiment post-survey.
Retail sales sustained positive demand for Australian dairy overall, despite category mix changes. Protein‑ driven consumption remains a key demand driver, while momentum in plant‑ based beverages has stalled as price pressures and awareness of ultra‑ processed foods reshape consumer choices.
“The demand outlook in the retail sector remains positive, particularly from a volume perspective,” Mr Youl said.
