Murray Goulburn’s new season farmgate milk prices shock effect, again

Posted by AFN Staff Writers on 29th June 2016

cows-1264545_960_720Dairy processing giant Murray Goulburn (MG) this week rattled its farmers again by declaring another low farmgate milk price, this time for its 2016/17 season.

The dairy co-operative says it expects to initially pay $4.31 per kilogram of milk solids (kgms), but this opening season price is still lower than the $4.75 per kgms farmers recently received for the end of MG’s 2015/16 season. MG forecast the price to rise to $4.80 per kgms by the end of the season.

Interim Chief Executive Officer of MG, David Mallison said commodity prices remain the largest external influence on MG’s financial performance.

“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 6 billion litres of milk,” Mallison said.

“Key commodity prices have remained below US $3, 000 per tonne for almost two years, much longer than historical price downturns.”

Mallison said MG acknowledges that its 2017 financial year will be a challenging one for its suppliers.

“Should more positive conditions emerge, MG will be vigilant in ensuring any upside passes to our supplies and investors,” he said.

For its 2017 financial year, MG is forecasting a net profit after tax of $42 million.

Farmers left “gutted”, Victorian Farmers Federation

President of the Victorian Farmers Federation, Adam Jenkins, said dairy farmers were “gutted” by the opening price.

“It’s left many of us floundering, wondering how we’re going to break even,” he said.

For now, Jenkins says dairy farmers need to focus on a number of factors including meeting their commitments to creditors, looking at re-financing options and pushing dairy factories to simplify their pricing structures.

“We all have to get back to basics – basic principles on farm and in the factories,” Jenkins said. “We can’t afford to run high cost, high risk farming or milk pricing systems anymore.”

What MG is doing to address market conditions

MG said it remains well-capitalised, and expects to have a net debt at 30 June 2016 below broker consensus estimates (approximately AUD $500 million).

“However after careful review, the Board and senior management believe there is substantial opportunity to release working capital across the business, which is anticipated to deliver improvements in MG’s cash flows and capital positions in FY17,” Murray Goulburn said in its recnet ASX announcement.

Mallison said MG believes there is an opportunity to generate better efficiencies from its business, both from a cost and working capital perspective, and in generating from its recent investments across new systems and manufacturing facilities.

“These objectives are consistent with MG’s focus on operational excellence, and I will be presenting the detail of these initiatives at our FY16 results in August,” he said.

 MG’s presence in China analysed 

The farm gate milk price announcement from MG comes after ABC’s Radio National ‘Background Briefing’ broadcasted a full report analysing the management errors and possible misrepresentations by MG’s management.

The ABC also published the background story saying part of MG’s troubles came from an attempt to sell value-added dairy products into China but a number of stumbling blocks were experienced and MG management had failed to identify or address these at the time.