Murray Goulburn needs to do something special to win back disgruntled suppliers after suspending it’s clawback program but at the same time cutting farm gate prices.
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“On one hand they say ‘don’t worry suppliers, we’re getting rid of the clawback’ and on the other hand they say ‘we’re going to dock you another 17c a kilo at the end of the year,” Greta dairy farmer Justin Evans said.
“Right now we’re three cents worse off.
“They’re going to have to pull a rabbit out of their hat to keep their suppliers.”
An unusually wet spring, plus low farmgate milk prices and a rush of suppliers quitting its ranks have hit Murray Goulburn’s earnings.
MG confirmed its forecast net profit after tax of $42 million for 2016-17 will now be lower because of a likely 20 per cent slump in milk receivals.
The dairy co-op cut its forecast seasonal farmgate milk price to farmers from $4.88 a kilogram of milk solids to $4.70kg.
The milk intake slide is attributed to a wave of farmer retirements and suppliers swapping to other processors in the wake of MG’s massive late season price cut early this year and fallout relating to the decision.
Chris White, who milks 1100 cows with his wife Heather at Finley, said the company was in panic mode.
“They’re trying to stop the bleeding, trying keep some of the suppliers,” Mr White said.
“They are going to be short on milk to supply their existing contracts and it’s not going to get any better in the the next little while because people have downsized or sold or changed suppliers. They’re not going to get that milk back.
“They are still reasonably non-price competitive even Fonterra is still $4.90 to $5, Parmalat’s higher what was Fonterra at Wagga is higher.”
On-farm production had also been hit by “very wet” conditions since August, which the co-op said were likely to result in a 12 per cent fall in milk from its 2200 members. Northern Victorian volumes fell almost 17 per cent in August compared with the same time in 2015.
The co-op’s total southern region milk intake is expected to be 2.7 billion litres this financial year.
MG’s net milk losses because of retirements and suppliers transferring to other processors alone represented a 350m litre cut on 2015-16 production.
However, MG’s farmers will now receive an extra 14 cents/kg (milk solids) as a result of the co-operative’s decision to suspend its milk payment clawback program until next June.
The clawback has been drawing on farmers’ current milk earnings to repay a $183m milk pool debt created by above-market milk payments last season.
Its temporary removal will now lift MG’s average-weighted available milk price to $4.60kg for the rest of the financial year.
Suspension of the Milk Supply Support Package (MSSP) applies from the start of October, while results of a broader review of the program will be discussed at MG’s annual general meeting next week.
Acting chief executive, David Mallinson, said although until recently there was confidence about spring rainfall was setting the dairy industry up for an excellent season, all of south-east of Australia was severely impacted by “extreme wet conditions”, making lower farmgate milk pricing more painful.
He said milk supply across the board had fallen by 10pc, placing further pressure on the dairy industry supply chain.
MG subsequently now faced a lower-than-expected closing milk price of $4.70kg for the season - down from a predicted $4.88kg.
However, a 35c/kg “additional growth incentive payment” for butterfat and 70c/kg protein has been announced as an option for assistance, from November 1.
“While a disappointing outcome, this revised forecast with no MSSP deduction still provides farmers with a higher net milk price than their current estimations,” Mr Mallinson said.
He said the company appreciated the “severe financial strain” on its suppliers and thanked them for ongoing support.
MG’s cost efficiency drive to cut as much as $60m from operating costs next year was progressing well and savings worth $10m to $15m would be achieved this financial year.
MG was also “proactively managing” its factories to target extra savings, scaling back production plans to cater for the lower milk intake.
“We will continue to review options to enable this cost base to remain competitive,” Mr Mallinson said.