Dairy farmers fear Murray Goulburn’s (MG) profit downgrade and milk payments will lead to widespread cuts to the price they are paid, even if they don't supply Australia's biggest processor.
The company released a trading update on Wednesday morning stating it now expected a net profit after tax of between $39 million and $42m. In February the company predicted a net profit of about $63m. That was down from its prospectus forecast of $89m. The statement said the board was "very disappointed" the company could not hit the milk price targets in its float documents from May last year or as revised in February when the company predicted a farmgate price of $5.60 per kilogram of milk solids (kg ms). It now expects that number to be between $4.75 and $5/kg ms.
The co-operative cited a spike in the Australian dollar and a global dairy market that continues to weaken after China slashed its spending on bulk dairy imports and amid Russia's ongoing trade sanctions on many western products.
Farmers now fear other milk processors will follow MG’s farm gate price cut – given its position as a price setter in the market and recent comments from its competitors that this season's price did not reflect global dairy conditions.
"Murray Goulburn has not just become known as Australia's biggest milk processor, it has also been known as a price setter in the market and if the milk price is cut to around $5.30 a kilogram it will put many farmers in a loss-making position," said Morgans analyst Belinda Moore said below the announcement.
Fonterra has maintained its farm gate price at $5.60/kg ms this season, but the company's managing director for Oceania, Judith Swales, indicated on Tuesday that could change. No announcement had been made before Stock & Land went to print.
"We are not immune to the global dairy challenges, and have been upfront throughout the season with our suppliers, expressing caution to our farmers to budget conservatively," Ms Swales said.
"Fonterra is committed to paying a competitive milk price in the Australian market, and with the rapidly changing environment, we will continue to keep our farmers well informed."
Warrnambool Cheese and Butter (WCB) sent a letter to its suppliers last week, stating it would continue to pay $5.60/kg ms. But WCB farmers are wondering how long that will now be maintained.
Although the global dairy market has weakened significantly beyond expectations from when MG raised $500m from its partial float last July, investors are demanding answers. Ms Moore said she wanted to know what had changed since half year financial results.
