UPDATE: Milk processor Fonterra has announced a closing farmgate milk price for the 2016/17 season of $5.00kg/MS, with an opening farmgate milk price of $4.75kg/MS for the next season — better than Murray Goulburn's offers but still disappointingly low for dairy farmers.
“Our forecast is based on the Australian dollar holding at around 74 cents to the US dollar,” Fonterra Velocity and Innovation COO Judith Swales says, “and reflects the revenue we expect to earn on products produced using our manufacturing assets.”
United Dairyfarmers of Victoria has welcomed Fonterra’s opening milk price but says that it falls well below the cost of production for most farmers.
“This price isn’t as bad as we expected, but it’s still extremely disappointing that it’s taken so long for Murray Goulburn and Fonterra to announce their opening prices,” UDV president Adam Jenkins says.
“Let’s face it – these two processors made unethical decisions which have left a significant portion industry in Limbo for the last twelve weeks.”
MURRAY Goulburn (MG) has cut its farm gate milk price to $4.31 per kilogram of milk solids for 2016-17, but has forecast a rise to $4.80 by the end of next season.
Dairy industry representative bodies including United Dairy Farmers of Victoria have slammed the move, since diary farmers had been expecting the price to be between $4.75 and $5 (down from $5.60) in line with MG’s forecast in May.
Many dairy farmers have told the ABC that the cost of production for a kilogram of milk solids is between $5 and $5.50.
MG interim chief executive officer David Mallinson says commodity prices remain the largest external influence on MG’s financial performance.
“Global conditions have not improved, and the latest data suggests excess global inventories, including the impact of European intervention, may have surpassed the equivalent of 6 billion litres of milk,” he says.
“Key commodity prices have remained below US$3,000 per tonne for almost two years, much longer than historical price downturns.
“In the face of these difficult market conditions, this forecast reflects MG’s view that commodity prices will continue to trade around current levels for the remainder of the 2016 calendar year, with only a modest recovery in price of around 6 per cent across MG’s major commodities during the second half of the 2017 financial year.
“Should more positive conditions emerge, MG will be vigilant in ensuring any upside passes to our suppliers and investors.”
MG believes it can release working capital across the business, which is anticipated to deliver improvement in the firm’s financial position.
“We believe there is an opportunity to continue to generate better efficiencies from our business, and in generating benefits from our recent investments across new systems and manufacturing facilities,” Mallinson says.
An effort to generate additional efficiencies and improve cash flow includes a cost reduction program across the business and continued improvements to offline distribution in China.
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