ROADNIGHT MUSING – AUGUST 2025

DAIRY OUTLOOK: KEY QUESTIONS ON PRICING AND MARKET DYNAMICS FOR FY26 AND BEYOND

In conversation with Steve Spencer from Freshagenda. Steve is a director with Freshagenda located in Melbourne, wholly owned by Ever.Ag based in the US. He is the managing director of Global Insights within the Ever.Ag Insights unit of Ever.Ag LLC. He and his team provide global dairy market insights to clients across the dairy world for use in strategy, planning and risk management. Locally the team provides insight into the drivers of domestic dairy product prices and farmgate milk prices, including resourcing the Milk Value Portal for the Australian Dairy Products Federation.

Andrew Colliver is the Managing Director Investments at Roadnight Ag – a private debt funder that helps farmers and suppliers in the agricultural sector achieve their growth plans. Steve and Andrew sat down recently to discuss the dairy outlook for FY26.

The new season has opened with strong milk prices  and plenty of discussion about what to expect in the next year. Below, we address some of the key questions farmers are asking as we enter FY26.

Q: How do you expect the final farmgate milk price for FY26 to compare with FY25?  

A: Opening prices for FY26 are roughly 10% above the closing FY25 levels, reflecting improved dairy commodity prices in global markets that have influenced domestic prices. It’s a solid start, but where we land will depend on several variables — processor margins, competition from imported cheese, global milk powder and cheese prices, and seasonal conditions. Of course, prices can’t fall once opening prices have been declared under the Dairy Code of Conduct, so the only real question is whether they can move higher.  

Q: What are the key factors likely to influence milk price over the next 1–3 years?

A:

• Global commodity markets — particularly cheese, butterfat and milk powders.

• Currency movements — an expected stronger Australian dollar will reduce export competitiveness and improve the attractiveness for imports.

• Domestic milk supply — milk supplies will remain tight. Southern production is forecast to decline by around 2% in FY26, driven by drought and herd reductions.

• Processor and retailer competition — the competition for milk between major players will put upward pressure on milk prices offered.

In short, the market remains finely balanced and there are factors that could go either way to influence the scope for any upside in farmgate prices.

Q: How do global dairy market conditions affect Australian farmgate milk prices?

A: Australia remains highly exposed to global markets conditions, relying on cheese and milk powder exports, while an attractive import market for cheese, butterfat and ingredients. International prices set the tone for what local processors can afford to pay.

Right now, Australian Commodity Milk Value (ACMV) is tracking at $8.96/kgMS, sitting above the Oceania Commodity Milk Value (CMV) at $8.79/kgMS.

• ACMV reflects what processors can afford to pay based on domestic wholesale prices for products like cheese, butter, and powders, after processing costs.

• CMV reflects a similar calculation but based on NZ export spot prices, which are heavily influenced by outcomes from Global Dairy Trade events.

The fact that ACMV is higher than CMV tells us that Australian domestic wholesale returns are currently higher than commodity export returns. In other words, processors with a large share of their sales in the domestic market (like drinking milk and local cheese) are able to generate higher unit gross returns for raw milk than those reliant on the global commodity market.

That said, rising US cheese production, an over-supplied Chinese supply chain and a slow recovery in Asian ingredient demand are headwinds to watch.

Steve Spencer from Freshagenda

Q: How is processor competition shaping up compared to last year?

A: Competition for milk remains intense across southern Australia, particularly in Victoria, with most processors eager to secure supply in a challenging production environment. This competitive tension has been a key factor supportive of the approach to opening prices for FY26, which are sitting roughly 10% higher than last year’s close. While this is positive for farmers in the short term, it also reflects a market where processors are fighting hard to maintain throughput, and tight margins are being closely managed.

Q: There are often price differences between various milk buyers. What enables some, like Coles, to consistently offer higher farmgate prices?

A: Coles operates a vertically integrated model, sourcing milk directly from farmers and using its overall milk supply chain margin to underwrite farmgate contracts. Coles pays a premium to secure supply and lock in long-term relationships. Most other processors are at least some exposure to global markets, so their pricing models are reflective of those realities.

Q: How might changes in herd size, farm consolidation, or on-farm technology impact future milk supply and pricing?

A: We’re seeing fewer but larger, more efficient operations emerge across the industry. Consolidation often comes with investments in technology — robotic milking, advanced feed systems, and data-driven herd management. These innovations help stabilise or even lift production, even with workforce challenges. Over time, this should make supply more resilient. Even with moderate increases in Australian milk output, there will be little impact on farmgate milk prices due to the minimal effect of this country’s output on global market conditions.

Q: How could shifts in consumer demand — both domestically and globally — impact the pricing outlook for Australian dairy?

A: Tight global market conditions due to an extended period without growth in milk output from the top 5 producers, has been supportive of commodity prices, despite a collapse in ingredient import demand from China. Demand from developing dairy markets has recovered to some extent, strongest in cheese, , where Australia has a foothold in certain high-value markets.

Domestically, demand for fresh milk and value-added products is steady, though plant-based alternatives continue to nibble at some categories although these have suffered from price-sensitivity in tough economic times. Domestic markets are most important in overall terms while exports to premium segments — such as high-end cheese markets in Asia — will remain important to achieving sustainable farmgate prices in the medium term.

Final thoughts…

The production season ahead looks challenging for producers in several regions. The stronger farmgate prices are welcome news and will go some way towards easing the pressures of drought, high feed costs, and labour challenges — though they are unlikely to offset them entirely.

For many, FY26 represents an opportunity to stabilise businesses, invest in efficiency, and galvanise their enterprises to remain sustainable in a dynamic market environment.