Dairy farmers have a “limited margin for error” in the upcoming 2026-27 season, according to the latest Rabobank annual Australian Dairy Outlook report.
Rabobank’s latest annual Australian Dairy Outlook report has said dairy farmers have a “limited margin for error” in the upcoming 2026-27 season, with input costs squeezing the industry’s profitability.
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The report, led by Rabobank’s research division, said cost of fuel, fertilisers, water, labour and high interest rates, are all applying pressure to producers, pushing milk prices toward unprofitable levels and eroding market confidence.
The report’s author, senior dairy analyst Michael Harvey, said while seasonal conditions have improved for some regions, it won't be enough for the industry to make a full recovery.
“The positives are insufficient to fully offset the compounding cost pressures now embedded across the farm and downstream value chain,” Mr Harvey said.
“Navigating the 2026-27 season will require disciplined cost management and careful capital allocation as well as – for processors – prudent farm gate milk pricing strategies.”
Global uncertainty continues to shake the industry, with fertiliser and fuel costs heavily impacted by conflict in the Middle East.
“Prices for fuel and fertiliser, particularly urea... have risen sharply,” Mr Harvey said.
“In addition, fuel surcharges are indirectly increasing the cost of a wide range of farm inputs and service provisions.”
Rabobank's senior dairy analyst Michael Harvey said that dairy producers were feeling the squeeze, as input costs continue to soar.
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The report also said higher borrowing rates, a tightened labour market and increased water allocation prices were also pressuring profitability margins.
Pressures extend beyond the farm gate, with freight, packaging and energy costs all making it more expensive to get products to market.
Many of these costs may begin to be passed on to consumers at the checkout, according to the report.
“A renewed cycle of food price inflation, including for dairy, would further test consumer resilience,” Mr Harvey said.
In terms of overall production so far this year, the report said that national milk production had been mostly flat, with annual output sitting at 8.3 billion litres as of March.
The report said that northern regions were leading the charge, with Victoria and South Australia experiencing year-on-year declines in production.
Forecasts for below-average rainfall and a possible shift to El Niño conditions are also hanging over the production outlook, the report said.
Against this backdrop, RaboResearch forecasts national milk production for the rest of the year to decline by 1.2 per cent in 2026-27, marking a third consecutive annual contraction.
