More bad news for Dairy Farmers from Murray Goulburn

By Glenn Dyer | More Articles by Glenn Dyer

More bad news for many dairy farmers from Murray Goulburn – the struggling dairy group, the country’s largest, has cut its estimate for 2016-17 milk prices even lower.

Murray Goulburn announced yesterday that it expects to pay dairy farmers $4.80 per kilogram of milk solids (kgms) for the 12 months ending June 30, 2017.

But the opening farmgate milk price will be just $4.31 per kgms.

Burra Foods in Victoria has dropped its farmgate price forecast to $4.40-$4.60 a kilogram from $5.60 a kilogram at the moment, and Bega Cheese has cut its price from $5.60 to $5 (but still well above the opening level for Murray Goulburn).

Murray Goulburn sparked controversy in April when it slashed milk solid prices from $5.60 to $4.75-$5 and said it would struggle to meet its earnings forecasts. Fonterra cut its price from $5.60 to $5.

Adding to the sense of debacle was the news that many dairy farmers would have to repay money that already had been paid for their milk at the higher price.

Murray Goulburn blamed the global oversupply and falling prices (but that had been evident for more than a year), but a major point of contention with many farmers was the cheap milk and cheese deal with Coles. That is still a major irritant.

In April, Murray Goulburn slashed the farmgate milk price for the remainder of the 2015-16 season to between $4.75 and $5.00 per kgms, from $5.60, blaming global oversupply and very low global dairy commodity prices.

"Global conditions have not improved, and the latest data suggests excess global inventories, including the impact of European intervention, may have surpassed the equivalent of six billion litres of milk," Murray Goulburn interim chief executive David Mallinson said on Tuesday.

Mr Mallinson, who took over from former CEO Gary Helou who was forced out by the milk price debacle exploding in the company’s face, said key commodity prices had been low for almost two years – much longer than historical price downturns.

Under Helou, Murray Goulburn had promised a farmgate price of $6 a kgms.

Murray Goulburn said that the difficult market outlook (and global oversupply of milk) believed that commodity prices would continue to trade around current levels for the remainder of the 2016 calendar year.

Prices may recover by a modest 6% across Murray Goulburn’s major commodities during the second half of the 2016-17 financial year.

“We acknowledge FY17 will be a challenging year for our suppliers,” Mr Mallinson said yesterday.

"We have set a robust forecast, and while there are a number of areas which may provide upside to our FY17 forecast, we do not believe it is prudent to include these in our forecast at this stage."

Meanwhile, Murray Goulburn on Tuesday forecast a net profit for 2016-17 of $42 million, an improvement on the $39 million 2015-16 profit predicted in April.

That won’t go down well with suffering dairy farmer suppliers to the company who will want to know why they can’t be paid a bit more if the profit is going to be higher.

Units in Murray Goulburn’s entity listed on the share market, the MG Unit Trust, lost 2.6% to end at $1.105.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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