Dairy feels the pinch

Dairy Australia’s Mid-Year Situation and Outlook report signalled further contraction in the Australian milk pool over the 2025-26 season, and rapidly evolving operating conditions will likely see this through.

While it’s unusual to have a drought in winter, several southern dairying regions are dealing with severe dry conditions, while wet weather has been the key constraint in some northern areas — not to mention the May floods that severely impacted businesses in the mid-north coast and Hunter regions of NSW.

In most regions, weather challenges have weighed on pasture growth and increased demand for supplementary feed, with dry conditions also tightening water availability.

Those with access to irrigation have able to support pasture growth, albeit at higher costs, as water storage levels lower.

Water for stock and domestic use have also been growing constraints for many farmers.

Furthermore, tightened fodder availability across most dairying regions has pressured feed costs, as on-farm stores are utilised and demand for supplementary feed rises.

Fodder prices have risen in most dairying regions, ranging up to 50 per cent more from May last year.

In light of these growing pressures for many farming businesses, culling rates have increased, with the number of head passing through the saleyards up six per cent on a season to date basis (July 2024 to May 2025).

There are also anecdotal reports of larger numbers going to the abattoirs, and young stock being sold.

While winter rain has arrived for some southern regions, indications from the Bureau of Meteorology suggest the drought is not yet broken, and conditions in northern regions remain on the wetter side.

Operating costs for dairy farming businesses continue to rise, especially with many now focusing on recovery.

For those affected by floods, damage to paddocks, stored feed and infrastructure will need attention, and those in drought areas are also having to resow paddocks in the hopes of revival for spring.

With these prolonged challenging weather conditions, demand for supplementary feed will remain high for the already tight supply of bales across the country.

A continuation of unfavourable weather conditions will limit the amount of hay and silage produced in the first half of the season, in addition to grain yields.

This may keep the pressure on feed prices going forward, especially if grain export demand remains robust.

The expectation of continued financial pain for many farming businesses has also changed the appetite for business growth and investment intentions.

As reported in the 2025 National Dairy Farmer Survey, there are now fewer farming businesses reporting they are in an expansion phase (18 per cent) and a significant shift from major planned investments to those of a minor to moderate scale.

Farm margins will likely remain constrained in the new season, but the higher opening farm gate milk prices announced in June may help alleviate some of the input cost pain.

At the time of writing, the industry’s ‘silly season’ was not yet over, however, a handful of companies had announced step-ups, increasing the bottom and top of the range to $8.60/kg MS and $9.50/kg MS.

A contracting Australian milk pool could support mid-season step-ups, but these may be limited by further price movement during June, and how product returns shift in both export and domestic markets.

All in all, while recent rain in drought-affected regions provides signs of hope, decisions made on-farm to combat this season’s challenges will likely have lingering impacts into 2025-26.

Higher farm gate milk prices are welcome, but pressures around feed availability and costs continue to mount, as do those involved with recovery from extreme weather conditions.

These factors, combined with continued farm exits consistent with the long-term trend, are all likely to contribute to the expected contraction in the 2025-26 Australian milk pool.

Once industry has visibility on final 2024-25 full season volumes, and a better grasp of spring weather conditions, the path forward will be clearer.

Eliza Redfern is Dairy Australia’s analysis and insights manager.