MG step up boosts farmer confidence

MG told suppliers it would raise its farm gate milk price to to $4.46/kg MS, after repayment of the milk supply support package (MSSP). It also forecast a modest eight cent improvement in the full year weighted average, to $4.88/kg MS.

MG also told suppliers it was continuing to review the MSSP, with the aim of “providing a better solution to support suppliers”.

Interim chief executive David Mallinson said MG understood cash flow remained tight “...as farm businesses deal with a profoundly difficult season, including the introduction of the MSSP”.

“This step up delivers and additional $32.8 million to MG’s dairy farmers and is designed to assist with cash flow in the coming months.”

Farmer Craig Dettling, Macarthur, said the increase was a morale booster.

“It’s one part of the solution. Seeing what they do with the MSSP is another part, and as the new directors come on, that will be another part,” Mr Dettling said.

“There is no silver bullet.”

In June, MG announced an opening milk price of $4.31/kg MS for those on the MSSP. It predicted a closing price of $4.80/kg MS for the financial year, after cutting its payment from $5.60kg/ms.

Mr Dettling praised the co-operative for a conservative approach to the final farm gate price.

“Definitely the worst thing they can do is overestimate, or factor in an increase in global prices which doesn’t eventuate,” he said.

“They have to be conservative, but pass on any improvements as soon as they come through – as they have done now.”

Bruce Manintveld, Mirboo North, said the step up was very welcome.

“It will be interesting to see whether the industry in general gains some confidence from this, or whether it just increases the scepticism many have of MG,” Mr Manintveld said.

Mr Mallinson said the increase reflected an improvement in the global dairy commodity market, after a particularly challenging period for processors and dairy farmers.

“It reflects rigorous control and discipline, we have sought to embed concerning farm gate milk pricing, to offer suppliers more confidence in the decision making process,” he said.

“We remain determined to deliver higher returns to our dairy farmer suppliers and shareholders and will pass further upside on to suppliers, as soon as conditions permit.”

The co-operative has cut staff in and is said to be looking at procurement benefits and systems improvements. 

Mr Mallinson said while the global dairy market had shown signs of recovery, it remained below average levels.

Commodity prices and the current strength of the Australian dollar, as always, remain a source of risk to our current full year forecast.”

MG had also started a formal review of the MSSP, with results to be announced before the October 28 annual general meeting.

“The board and management are actively reviewing all options, with a view to providing a better solution to support suppliers in the long term interests of suppliers and MG,” Mr Mallinson said.

Fresh Agenda director Steve Spencer said the market was picking up, as milk production dropped, particularly in Europe and possibly in New Zealand.

“As we keep rolling forward, the rebound in prices is happening quickly and strongly,” Mr Spencer said.

“We see the market continuing to strengthen in the coming season, based on supply and demand.”

European supply was falling around two per cent per year, on the previous 12 months’ figures.

Last season, Europe had enjoyed good milk prices and a “fantastic season” but the European Commission was now looking to pay incentives to farmers to cut production. He said the step up was necessary for MG to signal it was improving its performance, but he described the step up as a “catch up” payment.

“They needed to do that quickly, given the tide of departures occurring, they have got to restore that focus, as fast as they can,” he said.

“It will need to be more than that, but it’s a good early sign and if market continues they may be able to do more.”