Australia’s biggest farming co-operative, Murray Goulburn (MGC), has warned it may cut the milk price it pays to its dairy farmers below the crucial $6 a kilo level following the slump in global dairy prices.
The slide of more than 50% in the past year to 18 months for some key dairy products, has already forced NZ companies, led by the giant Fonterra, to cut their farmgate prices paid to Kiwi dairy farmers.
Murray Goulburn has previously insisted it had planned to maintain a $6 a kilo farmgate milk price for the third successive year in 2016. The promise was made as part of its recent $500 million capital raising and listing of a unit trust on the Australian Securities Exchange.
That decision to maintain a high price drew criticism late last week from Fonterra, the big Kiwi dairy company which controls Bega Cheese.
But in its 2015 profit report released yesterday, Murray Goulburn said the $6 a kilo forecast remained subject to certain assumptions, including a material strengthening of commodity prices during the balance of 2016, foreign exchange and other risk factors.
“If these factors do not materialise, Murray Goulburn’s FY16 Available Southern Milk Region FMP is more likely to be in the range of $5.60 to $5.90 per kg and net profit attributable to shareholders and unitholders between $66 million and $79 million," the company told the ASX.
Chief executive Gary Helou stressed the co-op was still confident of maintaining the $6 a kilo level. (It paid $6.02 a litre for 2014-15.)
“We assumed a strengthening of commodity prices in our forecasts….that still is our assumption,’’ he said yesterday, noting that supply from New Zealand, the US and Europe had fallen in response to slowing global demand.
He also said Murray Goulburn had benefited from a lower than forecast (and more favourable) exchange rate than forecast in the prospectus for its raising and that the company had reduced its exposure to commodity-based products to 30%, down from 50% a year ago.
Murray Goulburn processes more than a third of Australia’s 9.3 billion-litre annual milk output. Maintaining a high milk price has put pressure on its competitors, such as Fonterra-controlled Bega, who have been forced to slash costs to compete.
That helps explain the complaints last week from Fonterra chief executive Theo Spierings who said on Friday that Australian dairy farmers were being paid too much for their milk.
MG yesterday reported a profit after income tax of $25.7 million for 2014-15, down from $27.94 million, but slightly above the forecasts in the documentation for its capital raising. Sales revenue dipped to $2.87 billion from $2.9 billion.
The company said it hopes to produce an annual net profit of $86 million for 2015-16.
But if global dairy commodity prices do not recover at all, net profit would be between $66 million and $79 million.
Fonterra is due to conduct another global dairy auction over the next 24 hours, with the results known tomorrow. The last auction saw a surprise 14% rise in the average price, one of the strongest for years.
MGC unit trust securities rose 4.5% to $1.94 yesterday.
