Embattled milk processor Murray Goulburn has slashed the price it plans to pay suppliers for the next season, to $4.31 a kilogram for milk solids (kgms).
By the end of next season, the processor has forecast that price will have risen to $4.80 kgms.
Dairy farmers have told the ABC the cost of production for a kilogram of milk solids is between $5.00 and $5.50.
Industry body United Dairy Farmers of Victoria president Adam Jenkins said suppliers were “numb”.
“They’ve been doing their figures on the $4.70 – $4.80 kgms opening price, and so they’re going to re-crunch their numbers.”
Dairy processors in Australia forecast a price they plan to pay their suppliers at the opening of the season, and make regular adjustments to the forecast throughout the season.
Murray Goulburn is Australia’s largest dairy cooperative, which under the leadership of former-managing director Gary Helou, had been promising to pay farmers $6.00 kgms, by the end of the current 2015/16 season.
Those hopes were shattered when Murray Goulburn entered a trading halt in early April before announcing it would slash the price to somewhere between $4.75 – $5.00 kgms.
In its latest disclosure to the ASX, the co-op did not reveal the closing price for the 2015/16 season, because the season hasn’t finished.
Interim CEO David Mallinson told ABC Rural 3.6 million litres of the processor’s milk production was sold on international commodity markets, which aren’t expected to pick up for the rest of 2016.
“We are aware our farmers will be hard done by with cash flow next year, and we’ll be working hard with the farmers to bring cash flow to them as hard as we can,” he said.
“We opened up with with the highest price we could.”
The cooperative cited the Russian trade embargo, European dairy market deregulation and a downturn in demand from China as reasons it could not sustain its price earlier this year.
Rival dairy processor Fonterra followed quickly after, cutting the price it planned to pay suppliers from $5.60 to $5.00 kgms.
It sparked a wave of anger among dairy farmers, who took to the streets to protest against unsustainably low milk prices.
Profits won’t flow back to farmers
In a letter to its supplier shareholders, Murray Goulburn also announced a forecast full year 2016/17 net profit after tax (NPAT) of $42 million.
It’s full year 2016 profit results will announced when full year results are released on 24 August 2016.
Under rules established to share profits between suppliers of MG and investors in its Unit Trust, Mr Mallinson said it would be difficult to simply aim to break even and redistribute money back to farmers.
“There are provisions there that we could depart from the ‘profit sharing mechanism’ should a catastrophic event occur.
“But what we are seeing here is a normal swing in commodity cycles, albeit a swing to historic lows.”
Source: ABC News
