Opening price shock

MURRAY Goulburn has announced its net average milk opening price for 2016-17 as $4.31 per kilogram of milk solids, with a full year available price of $4.80 per kilogram.

With many farmers claiming the cost of production is closer to $5kgms the low return is feared to be likely to force  some producers out of the industry and to lead to lower production from other milk suppliers.

The low price is caused by the application of MG’s Milk Supply Support Package, which is a repayment of $0.14/kg, or one cent per litre.

For suppliers who elected to pre-pay their MSSP amount, the average available opening price for the Southern Milk Region is $4.45/kg.

To support farm budgets and maximise cashflows, the MG board and management elected to recoup half this year’s MSSP payment in the opening price (about one cent per litre) with the other half (about one cent per litre) to be recouped from future step-ups.

MG’s MSSP is a repayment plan, as the company chose to continue paying suppliers as much as they could until the end of the year, with the difference between the two prices to be paid back over three years.

In this case, the initial repayment is $0.14/kg, and the milk price is $4.31 for supplier, however this could change in the future.

Farmers could elect to repay the MSSP in advance, and so would instead be paid $4.45/kg.

MG also forecasts a full year net profit after tax (NPAT) of $42 million and therefore dividend/distribution to be paid to MG shareholders and MG Unit Trust unit holders in relation to FY17 of 7.6 cents per share/unit. 

Two thirds of the available dividend/distribution pool will be paid to MG supplier-shareholders as a dividend.

New Zealand-based processor Fonterra has also announced its opening farmgate milk price as $4.75/kg.

Fonterra chief operating officer of velocity and innovation, Judith Swales, said that this was a responsible opening price that reflected current market conditions.

“Our forecast is based on the Australian dollar holding at around 74 cents to the US dollar and reflects the revenue we expect to earn on products produced using our manufacturing assets,” she said.

“Our farmgate milk price in Australia is also impacted by global dairy markets, given our mix of domestic and export sales.

“While we are still seeing an imbalance between global milk supply and demand there are signs in key milk producing areas of a slowdown in production and increased imports into key markets such as China, Asia and Latin America. 

“This supports our view of a recovery in global prices as we move through the season.”

She said the company forecast a closing price of $5/kg.

Local farmers have been sent into a tailspin by the low prices.

Denison farmer Graeme Anderson said he didn’t know the right words.

“I feel for the whole community, it’s a disaster for Gippsland,” he said.

“If we look back, we should have known milk production was too high.”

He said he was concerned for his son and other young farmers, who would not have the experience or equity that older farmers have.

“It’s the biggest kick in the guts, the MID was geared to fly ahead,” he said.

“No good bashing the directors who made the decisions, we have to get on and deal with it.”

President of United Dairyfarmers of Victoria, Adam Jenkins, said the price was below the cost of production for many dairy farmers.

“Dairy farmers are still carrying the weight of MG’s poor management decisions that’s led to the debt they’re being forced to repay on the back of this low opening milk price,” he said.

“We’re already hearing of some dairy farmers that are already laying off workers.”

BCS Accounting’s Julian Sellings said the price was much lower than he expected.

“It’ll make it very hard for farmers,” he said.

“I think you’ll find a lot of people getting out of farming unless fortunes change soon.”

Mr Sellings said global factors would keep the price of milk down for a while, but the price could change.

“They may decide halfway through to pay the higher closing price of $4.80,” he said.

The opening price of milk determines how farmers plan their budgets for the next year.

It shows how much processors will pay for supplied milk from the farms, and can change over the year.

In April, Murray Goulburn dramatically cut its price, leading to many farmers losing thousands overnight, as they had planned their businesses around a higher price of milk.

A major concern for farmers and the community as a whole is getting through the situation, and a number of initiatives are attempting to reach out to assist those struggling to cope.

Both the federal and state governments have funded mental health and community support programs, and the federal government has previously announced $579 million in concessional loans.

Locally, more Tactics for Tough Times and Look Over the Farmgate events are expected, and the Gippsland Farmer Relief Drive will hold an event at the Boisdale Consolidated Primary School at 10.30am on July 15.