Dairy Australia update: Production costs continue to weigh on milk flows

Milk volumes for the current milk year to date (July–October) were 2.3% below the same period in 2024.

Farmgate prices have seen some recovery this season but increasing costs have constrained profitability. Dry weather, high feed and irrigation costs and farm exits have been listed as main drivers for the reduction.

More recently, spring rain has improved pastures conditions in some regions, yet fodder price remains above last year’s level.

Prolonged low margins will have contributed to the 2% reduction of the national herd. However, at the same time the average herd size per farm has increased, suggesting that cows from industry exits have been taken to other herds.

Milk volumes have varied between regions, with Western and Northern Victoria (-4.1% and (-3.2%, respectively), Western Australia (-4.8%) South Australia (-7.6%) year-to-date volumes down as they struggled with drought. Meanwhile, Queensland (+1.6%), New South Wales (+1.2% and Tasmania (+2.0%) have increased.

Australian domestic demand has performed well in 2025, with retail volumes for most dairy categories above the year prior, supporting recently improved margins. As global prices have reduced, imports are likely to increase.

Australian dairy exports experienced a strong start to 2025, but softened slightly as the rest of the world increased production.

The outlook remains complex. US tariffs and European shipping diversions have driven some of the increase in exports to China. While European prices have recently dropped, the recently imposed anti-dumping tariffs could increase Australian competitiveness.

Higher farmgate milk prices may offer some relief, but climate conditions and input costs remain critical to future production.

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