Australia’s biggest farming co-operative, Murray Goulburn, has warned it may be forced to cut the milk price it pays to farmers below the crucial $6 mark following an unexpected ongoing decline in commodity prices.
Murray Goulburn has previously said it planned to maintain a $6 a kilo farmgate milk price for the third successive year in 2016 following its planned $500 million capital raising and listing of a unit trust on the Australian Securities Exchange.
But in its 2015 profit result released this morning, the group said the 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 this morning.
Chief executive Gary Helou stressed the co-op was still confident of maintaining the $6 price.
“We assumed a strengthening of commodity prices in our forecasts … That still is our assumption,’’ he said this morning, noting that supply from New Zealand, the United States and Europe had fallen in response to slowing global demand.
He also noted MG had benefited from a more-favourable exchange rate than forecast in documentation for its raising and that the company had reduced its exposure to commodity-based products to 30 per cent, down from 50 per cent a year ago.
“What is important for us is that we have shifted our business into less volatile and higher price, higher value products,’’ he said.
Asked about suggestions that MG was now bowing to the inevitable after keeping the forecast artificially high to bolster the recent capital raising, Mr Helou replied: “We take our obligations very seriously. You don’t put out a PDS with a cynical number. This was a PDS that had
a lot of scrutiny applied to it … When the PDS was put together we thought commodities had bottomed, but they had clearly fallen further.’’
MG collects and processes more than a third of Australia’s 9.3 billion-litre milk pool and maintaining a high milk price has put pressure on its competitors, who have been forced to slash costs to compete.
Fonterra chief executive Theo Spierings said last week Australian dairy farmers were being paid too much for their milk.
Mr Helou declined to comment directly on his claims, but said there were key differences between MG and Fonterra.
“It is a different business and our business is a different industry to New Zealand. Fifity-five per cent of our business is in the domestic market,’’ he said.
“We have a bigger orientation towards value add. Only 30 per cent of our business is in these volatile commodities. For those reasons we don’t think we are overpaying our dairy farmers.’’
MG this morning reported a profit after income tax of $21.2m, down from $29.3m, but slightly above the forecasts in documentation for its capital raising.