Production growth to slow as global dairy markets enter transition: Rabobank

Production growth in Australia’s dairy sector is expected to continue through the 2026/27 season, although at a more measured pace, as slowing global milk supply and rising demand for dairy proteins reshape market conditions, according to Rabobank.

The findings are contained in Rabobank’s latest Q3 Global Dairy Quarterly report from its RaboResearch division, which forecasts milk production growth across major exporting regions will slow amid tighter farmer margins, weather risks and changing consumer demand.

For Australia, the report estimates national milk production reached 8.35 billion litres in 2025/26, slightly higher year-on-year. Stronger production in New South Wales and Tasmania, alongside stabilisation in Victoria, has supported a firmer start to the new season.

RaboResearch senior dairy analyst Michael Harvey said the outlook for Australian producers remained broadly positive, supported by domestic market conditions and international demand, particularly for protein-rich dairy products.

However, he said weather conditions would remain an important factor for production.

“The key watchpoint for Australian dairy farmers is weather,” Harvey said. “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.”

Globally, milk production growth across major exporting regions slowed to an estimated 1.4 per cent year-on-year in the third quarter of 2026, which Rabobank said was the weakest quarterly growth rate since early 2025. Production growth across the “big seven” exporting regions is forecast to slow to 0.5 per cent in the second half of 2026, with output expected to contract slightly in the fourth quarter.

Harvey said rising input costs were adding pressure to dairy farm margins.

“While milk prices remain supportive in many regions, higher feed, fertiliser, fuel and freight costs are putting pressure on margins,” he said.

“If margin pressure intensifies and weather disruptions emerge, particularly across the southern hemisphere, milk supply growth could slow more quickly than current forecasts suggest.”

The report also identified dairy proteins as a key area of growth, with skim milk powder, whey protein concentrate and whey protein isolate outperforming milk-fat markets. Rabobank said demand was being supported by consumer interest in health, nutrition and protein-enriched products, alongside foodservice demand.

“Protein has become one of the strongest structural growth stories in global dairy markets,” Harvey said.

In Australia, farmgate milk prices for 2026/27 are largely established, providing some insulation from global commodity market volatility. Rabobank said further price upside would likely depend on sustained improvements in international dairy commodity returns, particularly cheese.

Australian dairy exports were mixed during 2025/26, with fluid milk exports increasing 9 per cent year-on-year while cheese exports remained broadly stable. Commodity exports including butter, whole milk powder and skim milk powder declined, according to the report.

Meanwhile, dairy imports increased across most major categories, with strong growth in whey imports pointing to continued domestic demand for dairy protein ingredients.

Rabobank also highlighted signs of stabilisation in China’s dairy market following an extended adjustment period. Slower domestic milk production growth and gradually improving consumption are expected to support a modest increase in Chinese dairy import requirements.

“China is increasingly transitioning from a market headwind to a source of demand support,” Harvey said.

“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.”