Australian milk production up in 2026 says USDA FAS

Australia’s milk production in 2026 is estimated to increase by 1.4% to 8.6 million metric tons (MMT), following a notable 2.1% decline in 2025, the US Department of Agriculture’s Foreign Agricultural Service reports (USDA FAS). The increase represents a partial recovery from drought conditions that affected southwest Victoria, one of Australia’s major dairy-producing regions, and South Australia.

Improved seasonal conditions, firm farmgate milk prices announced for the 2026/27 season and relatively lower feed grain costs are expected to support the recovery in production. These positive factors are anticipated to outweigh the impact of sharply higher fuel and fertilizer costs associated with the ongoing Middle East situation.

Domestic fluid milk consumption in 2026 is projected to decline by 0.5% to 2.4 MMT, reflecting a return to the longer-term trend of gradually declining consumption following a modest increase in 2024.

Consumer preferences in 2025 continued to favour full-fat and flavoured milk products, while demand for ultra-high temperature (UHT) and reduced-fat milk declined. Factory-use milk consumption in 2026 is forecast to increase by 1.8% to 6 MMT, primarily due to the expected increase in overall milk production.

With factory-use milk consumption projected to rise modestly in 2026, production of manufactured dairy products is also expected to increase slightly from the previous year. Cheese and skim milk powder (SMP) production are forecast to increase marginally, while butter and whole milk powder (WMP) production are expected to remain relatively unchanged, albeit at historically low levels.

Dairy processors are expected to continue prioritising cheese production to maximise economic returns, with approximately 61% of factory-use milk allocated to cheese manufacturing.

Fluid milk exports are forecast to increase in 2026 for the second consecutive year, supported by signs of strengthening demand in two key export markets following a trough in 2024. Cheese and SMP exports are also projected to increase by 1.7% and 1.9%, respectively, supported by higher production volumes. Butter exports are expected to rise modestly from a relatively low base. In contrast, WMP exports are projected to decline by 20% following weak trade performance during the first three months of 2026.

Cheese imports are forecast to increase by 4.3% in 2026, reaching a record level as imports from the US continue to expand at the expense of New Zealand. Butter imports are also projected to rise to match the record level reached in 2023, similarly driven by increased shipments from the US and reduced market share for New Zealand suppliers. WMP imports are also anticipated to increase modestly in 2026, but with imports double that of domestic consumption, this is driven by export demand for value added product. SMP imports remain relatively low and are expected to remain stable in 2026.