Rabobank says dairy outlook shifts on protein demand

Australia’s dairy outlook for 2026/27 remains positive, but Rabobank says growth is likely to be more measured as global milk supply slows and demand for dairy proteins strengthens.

The bank’s RaboResearch division forecasts Australian milk production will keep growing through the 2026/27 season after national production finished 2025/26 slightly higher year-on-year at an estimated 8.35 billion litres. It said stronger performances in New South Wales and Tasmania, along with stabilising production in Victoria, had helped put the industry on firmer footing.

Globally, Rabobank said milk production growth across major exporting regions slowed to an estimated 1.4% year-on-year in the third quarter of 2026, the weakest quarterly growth rate since early 2025. It forecasts growth across the “big seven” exporting regions will slow further to 0.5% in the second half of 2026, with milk output expected to contract slightly in the fourth quarter.

Australian production faces weather risk

RaboResearch senior dairy analyst Michael Harvey said weather remained the main watchpoint for Australian producers. “The key watchpoint for Australian dairy farmers is weather,” Harvey said.

He said the potential development of El Niño conditions and forecasts for below-average spring rainfall across parts of southern and eastern Australia posed downside risks for pasture growth, feed availability and milk supply.

Rabobank said Australian farmgate milk prices for 2026/27 were largely established, with the domestic market providing some insulation from volatility in global dairy commodity markets. It said any further milk-price upside was likely to depend on sustained improvements in international dairy commodity returns, particularly cheese markets.

The bank said dairy protein markets, including skim milk powder, whey protein concentrate and whey protein isolate, were continuing to outperform butterfat markets, driven by demand for health, nutrition and protein-enriched products. Harvey said, “Protein has become one of the strongest structural growth stories in global dairy markets.”

Rabobank also said China’s dairy market was stabilising after an extended adjustment period, with domestic milk production growth slowing and consumption gradually improving. It expects China’s import requirements to increase modestly.