Dairy producers across Australia are bracing for a season with little wiggle room for error as input costs continue to soar and supply constraints persist.
Rabobank’s latest Australian Dairy Outlook is forecasting eroded sector confidence and milk prices pushed to near “break even” as a result of rocketing production costs.
Report author and RaboResearch senior dairy analyst Michael Harvey said that although the sector had experienced a couple of positive events — seasonal conditions and a partial recovery of dairy commodity prices — they were not enough to offset the current compounding pressures in the supply chain.
He said those pressures would force dairy farmers to strategically plan and carefully control costs for the upcoming season.
“Navigating the 2026/27 season will require disciplined cost management and careful capital allocation as well as — for processors — prudent farmgate milk pricing strategies,” Mr Harvey said.
Pressure on the supply chain is building as input prices — fuel, fertiliser, water, and labour — and increasing interest rate rises are exacerbated by the conflict in the Middle East and geopolitics.
“Prices for fuel and fertiliser — particularly urea, the most-heavily applied nutrient in dairy systems — 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.”
Mr Harvey said the lifting of prices by retailers for consumers at the supermarket shelf would likely be followed by further pricing adjustments from brands.
“A renewed cycle of food price inflation, including for dairy, would further test consumer resilience with households already adjusting behaviour, increasingly trading down to private-label products and prioritising value over brand,” he said.
Mr Harvey said commodity milk prices rebounded from their 2025 levels, and rose by between about five to 30 per cent since the start of the year across the “commodity basket”.
National milk production growth is expected to stay constrained in the season ahead with competition uneven across processors as a result of cautious on-farm decision-making, limiting farm expansion.
“Despite improved growing conditions, farmers are responding to elevated fertiliser prices by reducing application rates and applying fertiliser more strategically,” Mr Harvey said.
“This is likely to constrain homegrown feed production and increase reliance on purchased feed.
“While some herd management practices are being adjusted to partially offset these impacts, feed costs remain a key pressure point.”
