By Danika Dent
A FORMER Bonlac Foods board member and now Murray Goulburn supplier has issued a dire warning.
“I’ve seen this happen before at Bonlac, and I really don’t want to see it again at Murray Goulburn,” Welshpool dairy farmer Kelvin Jackson said.
Mr Jackson said dairy farmers are owed an explanation as to how Murray Goulburn (MG) could open its season prices so low.
He warned unsustainable milk prices could force dairy farmers out of the industry, and push suppliers to other processors, leaving MG in a perfect storm with few options but to sell off.
Murray Goulburn announced its opening milk price at $4.80 per kilogram of milk solids, marked down to $4.31 to include the payment farmers owe Murray Goulburn to cover overpayment last season.
Fonterra opened at of $4.75kg/ms, Burra Foods $4.50, Warrnambool Cheese and Butter $4.80 and Bega $5.
Mr Jackson said the prices vary from farmer to farmer, based on milk fat content, seasonal calving, loan repayments, incentives and other fees and charges levied by processors.
MG CEO David Mallinson said the opening price was conservative as the company waits for external conditions to improve.
He said commodity prices, which have not improved over two years, and excess global milk inventories is impacting on MG’s profits, and therefore what it could pay its suppliers.
Mr Mallinson said markets are expected to improve in the second half of the 2017 financial year.
“We acknowledge [this season] will be a challenging year for our suppliers,” he said.
“We have set a robust forecast, and while there are a number of areas which may provide upside to our forecast, we do not believe it is prudent to include these in our forecast at this stage.
“Should more positive conditions emerge, MG will be vigilant in ensuring any upside passes to our suppliers and investors.”
A bitter pill
Dairy farmers have reported receiving milk cheques for the month as low as $30 in total, and are seriously considering their future in the industry.
“Personally it’s pretty tough for me, but there are many others who have it worse,” Mr Jackson said.
“The opening price was far less than I was expecting.
“I thought $4.50 was as low as MG could go, but then they’ve come out with $4.31.
“It’s extremely conservative and there will be some farmers who just can’t survive on that.
“I think MG has gone so conservative on the price just to avoid all the bad feedback they got at the farmer supplier meetings.
“The problem is, this has very real consequences on farmers’ cash flow.
“There won’t be too many people making money at this price, and there’s a whole heap of farmers that won’t even get $4.31, they’ll be much lower.
“Obviously I don’t want MG to pay a price they can’t afford, which would get us into another clawback, but blimey it’s a huge hit.
“The board needs to do absolutely everything they can to get anything back to the farmer.”
Mr Jackson said it ‘beggared belief’ as how MG thought it could pay $5.60 per kilogram of milk solids just a few months ago. He said astute farmers had been watching the international market and knew the figures weren’t adding up.
“MG owes the farmers an explanation, especially when MG made out that it was cushioned [from international markets] with its value adding program,” Mr Jackson continued.
“That led a lot of people into believing MG could get through on $5.60 per kilogram milk solids, then blow me down, six weeks later it was $5, then $4.75, and then this crash.
“Why was MG so confident a few months ago?
“It’s this mixed message that farmers are trying to come to terms with now.”
Milk prices well below the cost of production followed at Fonterra too last week.
Fonterra announced an opening price of $4.75kg/ms – a figure senior executive Judith Swales agreed was ‘below production cost’.
Ms Swales said the company’s opening price this financial year was “responsible”, and reflected prevailing market conditions.
“Our farmgate milk price in Australia is also impacted by global dairy markets given our mix of domestic and export sales,” Ms Swales said.
“While we are 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.”