Troubled milk dairy giant, Murray Goulburn (MGC) is reaping the unwanted rewards of treating its farmers harshly earlier this year by slashing their milk prices and forcing them to repay overpayments.
The company yesterday warned that it is facing a fall in its milk volumes as farmers switch to supplying rival processors or quit the industry.
As well, the company says the wet spring will slash its volumes by an estimated 20%.
The forecast decline has prompted the company to seek further cost reductions, with earnings now expected to fall short of an earlier forecast of $42 million for 2016-17.
While other milk processors are forecasting an improved farmgate price as global markets stabilise and have seen solid price rises in the past couple of months, Murray Goulburn seems to be staggering from problem to problem.
Yesterday it created more problems for itself by cutting its milk farmgate price.
But interestingly, the dairy giant seems to have found some sense – it has decided to suspend the need for farmers to repay advances made last year, a softening of the hardline seen earlier in the year.
The processor’s farmgate milk price is now expected to be $4.70 per kilogram of milk solids, down from $4.88.
Murray Goulburn said that with the repayment of the clawback of prior payments, the milk supply support package, of 14c/kg of milk solids will suspended until mid-2017.
“The rest of the industry is showing signs of recovery and other global market returns are moving in the opposite direction,” Adam Jenkins, the president of United Dairyfarmers of Victoria, said of the cut imposed by Murray Goulburn, according to Fairfax Media.
The latest cut imposed by Murray Goulburn is in stark contrast to what is happening across the Tasman where Fonterra New Zealand has raised its 2016-17 forecast farmgate milk price by 50c to $5.25kg MS.
Shares in the MG Unit Trust fell 3.3% to $1.15, after falling more than 6% in early trading. The company is not out of the swamp by a long way.
