Milk price drop shock

IN DEVASTATING news for the district’s many dairy farmers – and the local economy that depends on them – dairy giant Murray Goulburn has announced it will slash the price it pays its milk suppliers by around 10 per cent.

The dairy co-op says it is no longer feasible to pay $5.60 per kilogram of milk solids, the price announced at the end of February. Instead it expects to pay just $4.75 to $5 per kilogram.

In a further shock announcement last Wednesday came the news that Gary Helou would be stepping down from his role as managing director and the chief financial officer, Brad Hingle, would be leaving after finalisation of the 2015-16 annual results.

Mr Helou has been the driver of significant change at the company, including its partial float on the stock exchange last year and its drive to move to value added products. A MG statement said that he will remain with MG for a “short period” to assist with the transition to an interim chief executive but will no longer serve as a director.

The board has appointed David Mallinson, currently the executive general manager of business operations, as the interim CEO.

Mr Helou said he was proud of his work at the co-op.

“During my time at MG we have transformed the company’s capabilities and capacity and in the process delivered two consecutive years of premium milk prices for Australian farmers,” he said in a statement.

“While maintaining this price has proven to be difficult in current market conditions, I firmly believe MG has the foundations in place to support a strong and successful business in the years ahead.”

The co-op is forecasting net profit for 2016 to be between $39m and $42m, well below the previous consensus forecast of $63m and the prospectus forecast of $89m.

MG says it will introduce milk support payment programs to give suppliers an equivalent milk price of $5.47 per kilogram.

However, in a particularly cruel blow for farmers already hit hard by an exceptionally dry year, farmers will then need to repay MG the full cost of the support package, plus interest, over the next three financial years.

MG blames the price drop on unfavourable changes in the exchange rate, lower than expected adult milk powder sales in China, and a downward revision on the value of the milk supplies it currently holds.

Whatever the reason, the steepness of the price plunge has shocked many and it could hardly have come at a worse time for farmers already struggling through drought conditions.

MG supplier Deidre Zuidema, who milks a herd of around 150 cows with husband Ashley at Yanakie, expressed shock and disappointment.

“Everybody’s in shock,” she said. “We didn’t expect this. It’s particularly disappointing because it comes on top of very poor seasonal conditions.”

It has been a battle for many dairy farmers, Ms Zuidema said, to source enough water, and buying in extra hay was proving very costly.

“And we’ve been told that we will have to repay the money they have “overpaid” us. That makes me angry!”

Ms Zuidema said that suppliers were hoping to get more information from Murray Goulburn before the end of the financial year. “But we’re not holding our breath!”

The company is expected to announce its opening milk price for the 2016-17 season in coming months.

The reverberations from the shock price drop will continue to be felt far beyond MG’s suppliers. It is MG which generally sets the price which other dairy companies take into account when they set their own prices. No-one expects those milk prices to be high now.

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