Mr Irvin said there was no escaping the impact of drought and significant increases in farming costs that have sent milk production plunging at a time when smaller players were competing with Bega, Saputo and Fonterra for supply.
The Bega share price dropped more than 12 per cent to $4.98 on Wednesday after the company released guidance significantly below analyst expectations.
Bega Cheese is forecasting a normalised earnings before interest, tax, depreciation and amortisation in the range of $123 million to $130 million in 2018-19 while the analyst average was about $136 million.
Increased depreciation charges on infrastructure at the newly acquired Koroit processing plant in Victoria hit normalised profit after tax forecasts now expected to be between $44 million and $48 million compared to analyst projections well above $50 million.
Bega expects its overall milk intake in 2018-19 to be between 1 billion and 1.1 billion litres of milk compared to a total intake of 750 million litres last year, but will pay a lot more for it at the farm gate.
Farm gate prices vary from region to region but in parts of Bega’s Victorian heartland it has increased from 44¢ a litre to 47¢ a litre.
Mr Irvin said the farm gate price rises were significant when applied across a billion litres.
There are warnings the national milk pool could fall to a two-decade low on the back of high feed and water costs that have dented confidence among dairy producers.
A survey of Australian dairy farmers released this month showed more than half expected operating conditions to deteriorate over the next 12 months.
National production increased by 3 per cent on the previous financial year to about 9.3 billion litres, valued at $4.27 billion at the farm gate, in 2017-18.
However, Dairy Australia forecast a fall in 2018-19 which could take production below 9 million litres to levels not seen since 1995-96.
Fonterra, Saputo and Bega have all signalled paying more for milk as dairy farmers try to cope with rising feed, water and power costs.
Mr Irvin said some dairy farms had shut down and others reduced output in the face of record grain prices caused by the dismal east coast harvest.
«The other issue is the new capacity in the market as smaller players aggressively target supply,» he said.
«We are seeing strong competition for milk, which we may be able to recover in the Australian market but when look at global market, we’re not so sure that we can recover it.»
Rabobank research released on Wednesday showed the trend of slowing global milk production had continued into the final months of the year.
It said combined production from the biggest exporters – the US, the European Union, New Zealand, Australia, Brazil, Argentina and Uruguay – would grow by just 0.6 per cent year-on-year in the final three months of 2018.
Rabobank said milk production growth had stalled in Europe and pulled back in Australia because of the impact of seasonal conditions on feed quality, quantity and cost.
