Milk price woes - ‘Stunned’ by MG opening price

June 14, 2017

The release of a conservative opening price from Murray Goulburn has prompted concern and disappointment from farmers, who say the price may not be enough to recover from losses during last year’s tumultuous season.

The release of a conservative opening price from Murray Goulburn has prompted concern and disappointment from farmers, who say the price may not be enough to recover from losses during last year’s tumultuous season.

Last week, Murray Goulburn announced its FY18 opening price for its southern milk region of $4.70/kg of milk solids, but is forecasting a full-year price in the range of $5.20 to $5.40/kg MS.

For Katunga Murray Goulburn supplier Lionel Harneiss, who farms in partnership with his son, the announcement came as an absolute shock.

‘‘Last year milk payments were really rock bottom and we were barely able to survive,’’ he said.

‘‘When Bega announced their opening price, we really thought Murray Goulburn would be something similar, and when they announced it as $4.70, we were stunned.

‘‘It’s somewhat below cost of production.

‘‘All last year we tried our best to survive — we shelved our farm maintenance, there was no fixing of fences, no repairs on the laneways, it was a financial fight for survival.’’

Like others, the price announcement has Mr Harneiss questioning his loyalty and considering his three-year contract with the company, which he says he is close to fulfilling.

‘‘It’s an additional $50000 for the season if we were to go with Bega, that’s $1000 a week, which is a lot for our little farm,’’ he said.

‘‘We wouldn’t be so hard pressed, it would even allow us to do a little maintenance.’’

He said the forecast full-year price was a little more comforting, but questioned whether the step-ups would come in time.

‘‘We know that the full price can come very late in the following season — it’s a long, hard slog until then.’’

The price has Mr Harneiss also concerned about the viability of his farm, but he said he would still continue to hope for an improved price before they got ready to start their season later next month.

‘‘With the really low payments last year, we really thought we would be folding, that we couldn’t continue this year,’’ he said.

‘‘To get this price ahead of the season ... we’re still in shock I think, it hasn’t really sunk in yet.

‘‘We’ll have to assess in coming weeks where we stand and what it will mean for our farm.

‘‘My son will be working off-farm again and that will put a strain on me to do all the milking and day-to-day farm work, especially taking into the fact that I’m nearly 70 and was looking to wind down soon,’’ Mr Harneiss said.

Murray Goulburn chief executive Ari Mervis said that in setting the forecast, the company had taken a prudent view on key assumptions for commodity prices.

‘‘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,’’ he said.

‘‘This has been somewhat offset by firmer butter and cheddar prices.

‘‘We have also had regard to Global Dairy Trade auction results over the past two months and current futures pricing, both of which suggest some ongoing price volatility in global markets.’’

In correspondence to suppliers, Mr Mervis noted that while the opening and forecast prices were an improvement on last year, MG’s performance remained below his expectations.

‘‘Today, MG announces the commencement of a comprehensive strategic review which will look at all aspects of MG’s strategy and corporate structure, including the profit sharing mechanism and capital structure,’’ he said.

‘‘I see this review as a fundamental next step to strengthen MG for the future.

‘‘While the previous decisions resulting from the manufacturing footprint review, including the announcement of three site closures were necessary, I do not consider them alone to be sufficient to move the business forward.’’

In a move that was welcomed for its honesty and openness, Mr Mervis also apologised for his earlier comments saying that farmers should be able to make a profit on MG’s opening price.

United Dairyfarmers of Victoria president Adam Jenkins said the early release of an opening milk price showed Murray Goulburn had listened to industry and the farming community.

‘‘We recognise that MG is in a challenging situation trying to navigate its way from the past into the future, but a $4.70/kg MS opening price presents a serious challenge for dairy farmers who are still recovering from the events of last year,’’ Mr Jenkins said.

‘‘The importance now is for MG to deliver returns to farmers as soon as the returns are realised in the marketplace.’’

While fellow major processor Fonterra was yet to announce an opening price, it has released a forecast price for the upcoming season of $5.30 to $5.70/kg MS.

It has also offered a 40¢/kg milk solids incentive.

Bega Cheese announced its opening price of $5.50/kg MS for Victorian milk supply, while Warrnambool Butter and Cheese is offering a range starting from $4.45.

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