Dairy producers across Victoria are facing a tightening operating environment, with declining milk flows and escalating water and fodder costs, according to the Dairy Australia Situation and Outlook Year-end 2025 report.

Milk production in northern Victoria has slipped 3.2 per cent year-to-date, reflecting the combined impact of dry conditions, high feed costs and mounting irrigation pressures.

After a stronger first half last season, much of the region has dried out, with farmers reporting reduced pasture growth and greater reliance on purchased feed.

Irrigation constraints are emerging as a critical factor, with water levels in several monitored storage sites now sitting below this time last year.

Water affordability has deteriorated sharply. Monthly average temporary water prices in northern Victoria have climbed to their highest levels in five years.

The report shows northern Victoria water trading at an average of $294/ML in October 2025, a rise of 150 per cent on the previous year and 201 per cent above the five-year average.

Price of water traded is October 2025 average compared to October last year (LY) and five-year (5Y) average. Details can be found in the monthly Production Inputs Monitor report. Table: Dairy Australia.

In the Murray Irrigation system, prices reached $252/ML, up 127 per cent year-on-year and 338 per cent above the five-year benchmark.

These increases are expected to further squeeze farm profitability through summer.

Feed markets are also tightening. In the Goulburn/Murray Valley, cereal hay reached $386/t in October 2025, up 16 per cent on the previous year, while regional stockfeed wheat edged slightly lower to $333/t.

Although some feed costs have eased nationally, fodder in key Victorian irrigation districts remains elevated, reflecting the impact of prolonged dry conditions and reduced local supply.

The broader seasonal challenges are reflected in the report’s analysis of Victorian dairy regions, where milk production declines are evident across all major zones.

The report notes that irrigation pressures in northern Victoria are now a significant constraint on production recovery, contributing to overall declines across the state.

Despite improved farmgate milk prices, the report warns that persistent high input costs — particularly water and fodder — will remain a major challenge for dairy businesses in northern Victoria throughout the 2025-26 season.

Nationally, Dairy Australia is forecasting a two per cent fall in milk production for the season, with regional irrigation districts expected to carry a disproportionate share of the impact.

For producers across these interconnected valleys and irrigation systems, the year ahead will hinge heavily on rainfall and water availability.

Key metrics from 2024-25 Dairy Farm Monitor Project by region. Table: Dairy Australia.

Source : Dairynews7x7 Jan 7th 2026 First published in Dairy News Australia