VICTORIA has taken the biggest hit as Australian milk production continues to drop.

Dairy Australia figures for last November indicate national milk production fell 5.4 per cent compared to the previous year, with Victoria's output dropping 7.9 per cent.

Dairy Australia's industry analyst, Peter Wilson, said the fall reflected dairy farmers cutting costs due to the lower milk prices.

"There was less grain and supplementary feeding in the first half of this season," he said. "The economics weren't there."

Mr Wilson said he didn't believe the drop could be attributed to the number of cows going out of the industry, because last year the number of cull cows increased just 3 per cent on the six-year average.

The largest regional drop in Victoria last November was 13.4 per cent, in the state's north. This followed the region's production fall of 17.6 per cent last October.

Milk production also continued to lag behind last season's figures in the other dairying regions.

However, like northern Victoria, last November's figures for the state's west and east were slightly better than October.

Western Victoria produced just over one million litres during November, or 4.7 per cent less than the previous November, while in the state's east, production was down 6.8 per cent, with slightly less than 970,000 litres.

It was a similar story in South Australia, where production dropped 3 per cent, to 267,300 litres.

Despite a good season in South Australia's South East, Mr Wilson said many dairy farmers supplied commodity-driven processors, which meant they had been hit harder by the low milk prices.

He said uncertainty over water influenced many farmers' production decisions further north.

Milk production was also down in Tasmania, with a fall of 5.8 per cent.

Queensland and NSW have continued to push ahead, thanks to the stability of milk-supply contracts.

Queensland was up 6.3 per cent for the month, while NSW was ahead 2.8 per cent.

With milk-supply contract changes looming, Mr Wilson said it was a case of dairy farmers in these states making milk while the money continued to flow.

Western Australia, with a fall of 0.9 per cent last November, remained more consistent than the other states, with amounts fluctuating little from month to month.

Mr Wilson said this was because West Australia consumed a large percentage of the milk it produced.