Dairy producers remain positive with support from a stable domestic market and strong international demand for protein-rich products
The outlook for dairy producers remained broadly positive, supported by stable domestic market conditions and resilient international demand, particularly for protein-rich dairy products.
And with expected continued growth in 2026-27, it offers the opportunity for corporate farm operations to increase their presence in the industry, as a more measured pace is evolving in the global dairy market.
According to Rabobank’s latest dairy market outlook Q3 2026, while milk production across major exporting regions continues to expand, global market fundamentals are increasingly being shaped by tightening farmer margins, weather risks and strengthening demand for dairy proteins.
For local producers, the report forecasts milk production growth will continue through the 2026-27 season after national production finished 2025-26 slightly higher year-on-year at an estimated 8.35 billion litres.
Stronger performances in New South Wales and Tasmania, combined with stabilising production in Victoria, have helped place the industry on a firmer footing entering the new season.
However, according to report co-author RaboResearch senior dairy analyst Michael Harvey, weather conditions will be critical as the season progresses.
“The key watchpoint for Australian dairy farmers is weather,” he added. “The potential development of El Niño conditions and forecasts for below-average spring rainfall across parts of southern and eastern Australia poses downside risks for pasture growth, feed availability and milk supply.”
Consumer conditions
The report found conditions for domestic consumers remain challenging as dairy inflation has begun to edge higher, reinforcing a cautious and value-focused approach to household spending.
Looking ahead, Michael Harvey emphasised, consumer demand for dairy is expected to remain “bifurcated”, with value-led purchasing persisting across mainstream categories, while interest in health, nutrition and convenience continues to support premium segments such as high-protein and lactose-free dairy products.
Protein markets outperform
One of the strongest sector themes identified in the report is the growing divergence between dairy protein markets and milk-fat markets.
The report indicates milk powder markets improved – largely due to import demand from milk powder buyers providing price support in the near-term.
That sector has been the standout performer during the September 2026 quarter, with recent Global Dairy Trade auctions delivering significant gains in skim milk powder and whole milk powder prices.
At the same time, dairy proteins – including skim milk powder, whey protein concentrate and whey protein isolate – continue to outperform butterfat markets, driven by consumer demand for health, nutrition and protein-enriched products.
Emerging dietary trends linked to GLP-1 weight-management medications are also supporting demand for high-protein foods.
“Protein has become one of the strongest structural growth stories in global dairy markets,” Michael Harvey confirmed.
“The combination of health and wellness trends, expanding foodservice demand and growing interest in protein-enriched nutrition products continues to provide strong support for dairy proteins globally.”
Local market insulated
The report notes that Australian farmgate milk prices for 2026-27 are largely established, with the domestic market continuing to provide some insulation from volatility in global dairy commodity markets. Further milk-price upside is likely to depend on sustained improvements in international dairy commodity returns, particularly cheese markets.
Dairy export performance was mixed during 2025-26. Fluid milk exports increased nine per cent year-on-year, supported by strong demand, while cheese exports remained broadly stable. Commodity dairy exports, including butter, whole milk powder and skim milk powder, recorded declines, the report indicated.
Dairy imports rose across most major categories, reflecting continued domestic demand for dairy fats and protein ingredients. Whey imports recorded particularly strong growth, highlighting consumer interest in high-protein nutrition products.
Global supply
Globally, the report found milk production growth across the major exporting regions slowed to an estimated 1.4% year-on-year during the third quarter of 2026, representing the weakest quarterly growth rate since early 2025.
RaboResearch forecasts production growth across the “big seven” exporting regions (the EU, US, New Zealand, Australia, Brazil, Argentina and Uruguay) will slow further to just 0.5 per cent in the second half of 2026, with milk output expected to contract slightly in the fourth quarter.
According to Michael Harvey, rising costs are becoming an increasingly important factor.
“While milk prices remain supportive in many regions, higher feed, fertiliser, fuel and freight costs are putting pressure on margins,” he emphasised.
“If margin pressure intensifies and weather disruptions emerge, particularly across the southern hemisphere, milk supply growth could slow more quickly than current forecasts suggest.”
China growth factor
A significant development highlighted in the report is the stabilisation of China’s dairy market after an extended adjustment period. Domestic Chinese milk production growth has slowed, while consumption is gradually improving, helping to rebalance supply and demand.
RaboResearch expects China’s import requirements to increase modestly, providing greater underlying support for international dairy markets.
“China is increasingly transitioning from a market headwind to a source of demand support,” Michael Harvey added.
“While we are not expecting a rapid recovery in consumption, the improving balance between supply and demand is an important positive signal for global dairy trade,” Michael Harvey concluded.
