Dairy farmers face tight squeeze

The small number of farmers who can afford to prepay will get $4.45 a kilo, which is still will below the Bega price and the $4.80 a kilo level on offer from Warrnambool Cheese and Butter.
MG’s price means farmers will be hoping for a better season than last year to cut water bills on their irrigation accounts.
The dairy giant indicated that while it saw only minor upgrades this year, it was hopeful that this might be the worst of it for the industry in the near term.
MG profit for 2017 is forecast at $42 million, which is at the top end of the 2016 year forecast of between $39 and $42m.
Before April’s profit downgrade the company had been tipping a profit this financial year of $63m, down from $70m at the start of the year.
Debt levels of $550m at year’s end are slightly below market forecasts.
Morgan’s analyst Belinda Moore noted “FY17 is another tough year, although hopefully, this should be as bad as it gets with most industry bodies forecasting global dairy prices to improve in 2H17. Importantly, new management is getting on with the job of turning around the business. This will take time.”
Acting chief David Mallinson has his hat in the ring to replace Gary Helou in the top job.
The company is committed to around $500m in new capital expenditure projects, including $250m for a new nutritionals plant and $165m for a new UHT plant.
It has also spent $80m upgrading its Cobram cheese plant.
The co-op has cut its milk powder inventory by some 20,000 tonnes since April but still has 125,000 tonnes in storage which is about 25,000 tonnes too much.
The powder will be packaged into one kilo bags and shipped to China and other parts of Asia.
It is also cutting costs and it is likely head office jobs, which now stand at around 350 people, will be cut in the next few months.
The co-op is in the middle of a new SAP system upgrade and when completed it is likely to reduce head office numbers.
It has also frozen head office pay and cut bonuses for the present year.
Global prices have collapsed from a peak of $5,000 a tonne in 2014 to around $2,900 a tonne today and MG is forecasting an increase of six per cent in the new calendar year.
It is also continuing to expand its operations in China and has signed deals with seven new regional distributors in China in order to build up its representation.
There is some blue sky ahead but the bottom line from today’s news is that dairy farmers are in for a tough time over the next 12 months.