Post-drought hope: West Vic farm profitability tipped to rise despite major challenges

Western Victoria has emerged as one of the biggest drivers behind a rebound in national farmer confidence, despite 97 percent of dairy farms in the region being affected by extreme weather in the past year.

What’s going on: Dairy Australia’s Mid-year 2026 Situation and Outlook Report surveyed 600 farmers across the country including western Victoria. 

Despite enduring extreme weather such as drought, bushfires and floods, confidence across the country’s dairy sector has improved significantly, supported by better rainfall, easing fodder costs and stronger-than-expected profitability. The report found:

• Seven out of 10 farmers described the past year’s weather conditions as severe.

• Urea prices surged more than 120 percent.

• Twenty-six percent of farms reported being in an “expansion phase”, with 38 percent of farms nationally having increased their herd sizes in the past year.

However, Dairy Australia noted the majority of the survey results were captured before the escalation of the conflict in the Middle East. 

Highs and lows: Nationally, four in five dairy farmers are now positive about the future of their own business, while 63 percent are optimistic about the industry overall.

• Milk production in Western Victoria is tracking 1.5 percent lower on average compared with last season, as a result of ongoing high costs and volatile weather conditions.

• The report said south west Victorian dairy farms recorded the lowest levels of directly grazed pasture - grass eaten by cows - in almost 20 years of Dairy Farm Monitor data, forcing many businesses to rely heavily on supplementary feeding like grain or hay.

Money talks: Hay prices also surged during the dry period, with July 2025 prices more than double those recorded a year earlier.

• Profitability across south west Victorian and South Australian dairy farms fell 48 percent in 2024-25 due to rising feed and finance costs as a result of the region’s severe drought.

There’s still hope: However, confidence is improving, with 81 percent of south west Victorian farmers now expecting to make a profit in 2025-26, compared to 71 percent in 2024-25.

Now what? Looking ahead, Dairy Australia expects western Victorian milk production to decline slightly again in 2026-27 due to ongoing high operating costs, lack of strong autumn break rainfall and continued uncertainty around fertiliser and fuel prices.