Securities in, Murray Goulburn fell to an all time low yesterday after the struggling dairy group warned that without another successful round of cost cuts, it may not be able to meet the farmgate milk price indicated to dairy farmers for the year ahead.
The news saw the securities in the Murray Goulburn Trust fall to an all time low of 73.5 cents. They closed down 15.5% at 73.5 cents, which was an all time closing low.
In a statement to the ASX on Tuesday morning, the dairy giant forecast a farmgate milk price of between $5.20-$5.40 a kilogram of milk solids for the 2018 financial year, although the opening price has been set at a more modest $4.70.
This represents a slight reduction from the $4.95 paid in the season ending this month which was up from the opening price of $4.45. All prices relate to the southern milk region.
Global dairy prices have been rising in 2017 so far and that has seen the huge Kiwi dairy group, Fonterra, lift its farmgate price both for the season about to end and the 2017-18 season. Fonterra has also boosted the estimated dividends to be paid on the shares held by farmer shareholders.
But Murray Goulburn, which had only revealed a swingeing round of cost cuts a month ago, then warned that achieving the forecast price level depends on further cuts to costs, along with the rising export prices and no appreciation in the value of the Australian dollar.
The forecast is also contingent on a milk intake of around 2.5 billion litres. Murray Goulburn has suffered a loss of volumes as farmers began supplying rival processors due to its uncompetitive prices and the rotten treatment of dairy farmer suppliers.
“Although global commodity prices have shown some recovery since this time last year, whole milk powder and particularly skim milk powder prices remain under 10 year averages,” chief executive Ari Mervis said yesterday in a letter to farmers released to the ASX.
“This has been somewhat offset by firmer butter and cheddar prices,” he added.
He told farmers the company has launched a “comprehensive strategic review…which will look at all aspects of its strategy and corporate structure, including the profit sharing Mechanism and capital structure”.
"I see this review as a fundamental next step to strengthen [Murray Goulburn] for the future. While the previous decisions resulting from the manufacturing footprint review, including the announcement of three site closures were necessary, I do not consider them alone to be sufficient.
"Given the timeframes associated with the site closures, the expected financial benefits are not expected to be fully realised until fiscal 2019."
Yesterday’s announcement came five weeks ago to the day when Murray Goulburn sprang a bigger a surprise, especially in its employees and several small towns in Victoria and Tasmania.
The company announced it would cut 360 jobs, close three processing facilities, take a $410 million hit from write downs and restructuring initiatives, and suspended dividend payments. Murray Goulburn said jobs would go at its Edith Creek facility in Tasmania, and its Rochester and Kiewa facilities in Victoria which will close over the next two years, saving the co-operative between $40 million and $50 million a year.
The company also said it would forgive debts owed by farmers under its controversial Milk Supply Support Package (MSSP), which Murray Goulburn introduced after it cut the price it pays farmers for their milk in April 2016.
And, Murray Goulburn has dumped plans to make major capital investments in its Dairy Beverages and Nutrionals businesses.
