Australia’s dairy sector is expected to continue growing in 2026/27 – although at a more measured pace – as global dairy markets enter a period of transition, according to Rabobank’s latest dairy market outlook.
The report, Q3 Global Dairy Quarterly, from the specialist agribusiness bank’s RaboResearch division, finds that while milk production across major exporting regions continues to expand, growth is slowing markedly and global market fundamentals are increasingly being shaped by tightening farmer margins, weather risks and strengthening demand for dairy proteins.
Report co-author RaboResearch senior dairy analyst Michael Harvey said the outlook for Australian dairy producers remained broadly positive, supported by stable domestic market conditions and resilient international demand, particularly for protein-rich dairy products.
For Australia, 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, Mr Harvey said seasonal conditions would be critical as the season progressed.
“The key watchpoint for Australian dairy farmers is weather,” he 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,” he said.
Consumer conditions
The report found conditions for Australian consumers remain challenging as dairy inflation has begun to edge higher, reinforcing a cautious and value-focused approach to
household spending.
Looking ahead, Mr Harvey said, 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. RaboResearch says milk powder markets improved – largely due to import demand from milk powder buyers providing price support in the near-term – have been the standout performers during the September 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,” Mr Harvey said.
“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.”
Australian 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.
Mr Harvey said Australian 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,” he said.
Meanwhile, Mr Harvey said, 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 per cent 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 Mr 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 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.”
China support
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,” Mr 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.”
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Rabobank Australia & New Zealand Group is a part of the international Rabobank Group, the world’s leading specialist in food and agribusiness banking. Rabobank has more than 125 years’ experience providing customised banking and finance solutions to businesses involved in all aspects of food and agribusiness. Rabobank is structured as a cooperative and operates in 35 countries, servicing the needs of more than nine million clients worldwide through a network of more than 1000 offices and branches. Rabobank Australia & New Zealand Group is one of Australasia’s leading agricultural lenders and a significant provider of business and corporate banking and financial services to the region’s food and agribusiness sector. The bank has 87 branches throughout Australia and New Zealand.
