December rebound does not offset annual decline in Australian milk production

Australia finished the year with a slight improvement in milk collections, although broader production trends remain under pressure. December marked the first annual growth since April, offering some relief after several months of contraction. However, the rebound does not offset the weakness observed earlier in the year, as structural challenges, weather conditions, and elevated input costs continue to challenge production.Australian dairy companies collected 814.1 million liters of milk in December, representing a 1.9% increase over the previous year and marking the first annual rise in milk output since April. The growth was largely driven by Victoria, where collections increased by 1.6%, confirming the state’s determinant role in shaping the output of the country.Other eastern regions also contributed to December’s gains. New South Wales posted a 4.2% annual increase, while Queensland’s production increased by 6.6%, and Tasmania's by 3.2%. Nonetheless, South Australia (-4.4%) and Western Australia (-0.7%) continued to report declining volumes. Overall, December provided a positive closure to a year marked by a persistent output contraction.Annual figures reflect the challenging year for Australian milk production. Total output reached 8.24 billion liters, representing a 2.1% decline compared to the previous year. Unfavorable weather conditions earlier in the year affected pasture growth and increased feed requirements, particularly in the South. Hence, December’s rebound was insufficient to offset the downward trend observed across the whole year.Unfavorable weather conditions Dry conditions in Victoria, South Australia, and parts of Tasmania increased the dependence on feed supplementation and reduced margins for farmers. Although rainfall improved in some regions in late spring, water availability remained limited in irrigation districts by the end of the year, with temporary water prices rising between 101% and 120% year-over-year in November.While the Australian Bureau of Meteorology forecasted average to favorable weather conditions, which could help stabilize pasture growth, further improvements in 2026 weather will be required to support a sustained recovery in output.Structural pressures affecting production potentialThe national dairy herd has been gradually contracting, and farm exits remain an ongoing challenge in the sector. Meanwhile, developments in the livestock market indicate more cautious strategies to herd management, instead of a renewed expansion. According to Dairy Australia, interest in restocking heifers has increased, supporting a higher demand for cows.Retention rates are increasing, considering a 17% month-over-month decline in cow saleyard sales to 26,427 heads for the 2025/26 season. Meanwhile, cull cow prices have increased by 39% to 338 cents per kilo liveweight. This indicates that producers are likely prioritizing herd retention as much as possible.Input costs remain another major constraint. While some relief has emerged in feed markets, prices remain historically elevated. Hay prices in Victoria declined compared to the previous month, with cereal hay averaging A$331 per ton (-3% MoM), lucerne A$494 (-3%), and pasture hay A$275 (-8.3%) in January. On an annual comparison, however, hay prices remain 4.9% to 20% higher, limiting margin recovery. Fertilizer and water costs also continue to weigh on farm profitability, particularly in irrigation-dependent regions.Some support for producers is coming from relatively elevated farmgate milk prices and strong retail demand, which have helped cushion the impact of higher costs. According to the Australia Dairy Products Federation, the Southern average milk price remained have remained relatively stable across the last year at A$8.4 per kilo dry matter. However, global dairy markets have softened amid rising milk production in other export regions, limiting further price upside. As a result, Dairy Australia forecast a 2% annual decline in milk production for the 2025/26 season. In conclusion, Australia closed the year with a slight rebound in December milk production, supported by improved seasonal conditions in eastern states. Yet, the contraction in annual output, elevated input costs, and cautious herd management suggest that the recovery in production will be gradual.