Murray Goulburn announces 2017 farmgate milk price, sees only 'modest' recovery

Murray Goulburn Cooperative, Australia's dominant milk processor, announced its forecast farmgate milk price for the coming year, saying it expects only a modest recovery in prices in the second half of the year.

The company forecast a farmgate milk price of $A4.80 per kilogram of milk solids for the season ending June 30, 2017, compared with an expected payment of between $A4.75 to $A5.00 in the current year. It announced a 2017 net opening farmgate milk price of $A4.31/kgMS after repayment of a 14Ac/kgMS milk supply support package.

Dairy companies are cutting payments to their farmer suppliers as they grapple with weak dairy prices, which have remained lower for longer than expected as global supply continues to exceed demand. Murray Goulburn said today that global conditions haven't yet improved.

"In the face of these difficult market conditions, the forecast 2017 financial year FMP 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 6% percent across MG's major commodities during the second half of the 2017 financial year," interim chief executive David Mallinson said in a statement. "This prolonged environment of lower prices means MG expects to achieve lower average selling prices for commodities throughout the 2017 financial year when compared with the 2016 financial year.

"We acknowledge the 2017 financial year will be a challenging year for our suppliers," he said.

To help cope with the lower prices, Murray Goulburn is looking to make its business more efficient by reducing costs and working capital levels, he said.

Australia's Bega Cheese last week released an opening farmgate milk price for the 2016/17 season of $A5/kgMS, saying analysts aren't expecting an improvement in dairy commodity returns until the first half of next year. Fonterra Cooperative Group, which is obliged to at least match Murray Goulburn's price under its Bonlac supply agreement, is yet to release its forecast for the new season in Australia.

Units in the MG Trust last traded at $A1.135 and have shed 54% this year.

(BusinessDesk)