At the same time, rising input costs and ongoing global uncertainty continue to create challenges for farm businesses and decision-making.
It’s the same across other dairy regions, with Dairy Australia suggesting rising input costs linked to the Middle East conflict are threatening late season gains and point to a softer 2026–27 outlook.
Its Mid-Year Situation and Outlook Report 2026 highlights a period of recovery for the industry, noting that Australian dairy steadied across the 2025-26 season after a turbulent start.
A strong turnaround in milk production has been a feature of the year, supported by a favourable autumn break that improved pasture conditions and soil moisture.
Production figures reflect this recovery.
After falling by 2.4 per cent year-on-year in October, milk output improved significantly to sit just 0.7 per cent down by March.
Analysts expect production for the remainder of the financial year to remain solid, underpinned by the improved seasonal conditions seen in recent months.
However, the outlook beyond the current season remains more uncertain.
Dairy Australia analysis and insights manager Tom Youl said that while well-timed rainfall helped sustain pasture growth and reduced the need for fertiliser late in the season, mounting cost pressures are likely to weigh on the year ahead.
“Farmers will face margin and cash flow pressure with input cost and broader supply chain price pressures from fuel and fertiliser expected to remain a factor heading into the new season,” Mr Youl said.
Despite these pressures, there are some positive signs.
Fuel price trends are pointing downward and national stockpiles have increased since early March, offering some relief to producers navigating volatile markets.
Against this mixed backdrop, Dairy Australia is projecting a two per cent decline in milk production for the 2026-27 season, with outcomes expected to range between a one and three per cent drop depending on external conditions.
Much will hinge on geopolitical developments and seasonal weather patterns.
Survey data suggests farmers remain cautiously optimistic.
The latest National Dairy Farmer Survey shows the proportion of farms in an “expansion” phase has risen to 26 per cent, while 38 per cent of respondents reported increasing herd sizes over the past year.
Meanwhile, demand for Australian dairy products has remained resilient.
Retail sales continue to be driven by protein-focused products such as Greek yoghurt, cooking cheese and butter, although cost-of-living pressures are prompting some consumers to shift towards more affordable options.
Globally, dairy markets have also shown resilience.
Despite increased supply from major producers such as New Zealand, Europe and the United States, prices - particularly for skim milk powder - have remained relatively firm.
Export demand has held steady, with growth recorded in South-East Asia and the Middle East and North Africa, as buyers prioritise food security amid ongoing geopolitical uncertainty.
Looking ahead, Mr Youl said the industry’s recent momentum should help stabilise production in the early months of the new season, although elevated input costs will continue to pose challenges.
“There is uncertainty on the horizon,” he said.
“However, the positive outlook for domestic and global demand will hopefully help to offset some of those challenges.”
