MG sets opening milk price, starts strategic review

MG sets $4.70 opening milk price, starts strategic review


Dairy
Murray Goulburn is anticipating continuing global dairy market volatility, despite some price improvements in recent months

Murray Goulburn is anticipating continuing global dairy market volatility, despite some price improvements in recent months

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Murray Goulburn co-operative is offering southern region suppliers a restrained opening price of $4.70 a kilogram of milk solids for the new season

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The Murray Goulburn co-operative is taking a careful approach to the next financial year’s milk market, offering suppliers a restrained opening price at $4.70 a kilogram of milk solids for the new season in its southern region.

The partly listed farmer co-op has also announced the start of a comprehensive strategic review of “all aspects of its strategy and corporate structure” –  including its capital structure and profit sharing mechanism with outside investors.

“While previous decisions resulting from the manufacturing footprint review, including the three site closures were necessary, I do not consider them alone to be sufficient to move the business forward,” said managing director, Ari Mervis.

“Although global commodity prices have shown some recovery since this time last year, whole milk powder and particularly skim milk powder prices remain under 10 year averages.”

Firmer butter and cheddar prices in recent months had compensated for low global milk powder values, but Murray Goulburn (MG) was anticipating continuing market volatility overseas.

Global dairy trade auction results in the past two months and current futures prices suggested “some ongoing price volatility in global markets”, Mr Mervis said.

The big co-op is forecasting its longer-term farmgate milk price (FMP) will range of $5.20/kg to $5.40/kg in 2017-18, assuming it achieves a budgeted milk intake of approximately 2.5 billion litres.

In a letter to suppliers Mr Mervis noted while the 2017-18 opening and forecast prices were an improvement on 2016-17, MG’s performance remained below his expectations.

The forecast price was subject to various assumptions, including dairy commodity price forecasts, exchange rates and MG achieving “cost out initiatives” to reposition its profitability agenda after a horror 18 months of depressed export returns, a debt blowout and the loss of about 30 per cent of its suppliers.  

Mr Mervis, said the company had taken a prudent view on key assumptions for commodity prices.

The strategic review would also be a fundamental next step to strengthen MG for the future.

“Given the timeframes associated with the site closures, the expected financial benefits are not expected to be fully realised by MG until FY19.

“A further update on the strategic review is expected at the time of MG’s full year results in August.”

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