Better balance in global dairy markets and lower input prices are positive signs for the Australian industry.
However, production margins remain tight or negative, and many farmers face a significant task rebuilding their equity position after the past 12 months.
International dairy commodity prices for most products are back above five year average levels and costs of major inputs continue to fall, with big grain and hay harvests bolstering supplies.
The year on year drop in Australia's milk production has moderated, from over 10% for the first four months, to 8.5% for the July to December period. Dairy Australia expects this gap will narrow further but remain significant, forecasting full season production to be down 6-8% on the 2015-16 total of 9.5 billion litres.
Robust sales growth is evident in the domestic market, along with significant consumer shifts within categories