Murray Goulburn milk price shock as Helou goes

MURRAY Goulburn has slashed its farmgate milk price to $5.47 a kilogram of milk solids for the rest of this season, and boss Gary Helou is stepping aside.

Stepping down: Murray Goulburn managing director Gary Helou will be leaving his role, the company announced today as it slashed its farmgate milk price.

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MURRAY Goulburn has just slashed its farmgate milk price to $5.47 a kilogram of milk solids for the rest of this season.

This is down from an original forecast of $6.05kg/MS and a revised forecast of $5.60kg/MS in February.

Australia’s largest dairy processor told the Australian Securities Exchange this morning that $5.60kg/MS was “no longer achievable”.

MG managing director Gary Helou will also “step down” from his role at the milk processor.

MG executive general manager of business operations David Mallinson has been appointed interim chief executive.

MG said the primary drivers for its revised outlook included a greater than 10 per cent unfavourable movement in the Australian-US dollar exchange rate compared to the rate previously assumed, “impacting the FY16 distributable milk pool by approximately $32 million”.

Lower than expected adult milk powder sales in China impacted the DMP by $60 million to $100 million while milk revaluation expense on inventory as a result of this lower than expected 2015-16 farmgate milk price, impacting 2015-16 DMP by $40 million to $54 million, MG said.

MG now expects a net profit after tax of between $39 million and $42 million with a fully franked dividend to shares and distribution to units of 7.1 cents to 7.8 cents for the full year (inclusive of the interim dividend/distribution of 3.5 cents a share/unit), MG said.

This is down from MG’s prospectus forecast of $89 million last year and also down on its revised February forecast of $63 million.

MG will also introduce a milk supply support package to protect MG’s milk supply in the long term by providing a milk support payment so that suppliers receive payments during 2015-16 equivalent to a farmgate milk price of $5.47kg/MS.

MG said this support package and its cash funding cost is to be recovered by MG from suppliers’ milk payments for up to three years (2016-17 to 2018-19) and will not affect the operation of the profit sharing mechanism.

Farmers fear MG’s move will encourage other processors to slash the farmgate milk price this season.

In August last year Fonterra Australia warned its suppliers of the possibility of a step-down. But it has held $5.60kg/MS.

There are also concerns about next season’s farmgate milk price with the impacts of a low payout felt right throughout dairy communities.

MG requested a trading halt for its units on Friday while it “undertakes a review of the impact of market conditions on its FY16 outlook”.

MG listed a unit trust on the ASX in July last year to raise up to $500 million to invest in the business and move it away from a reliance on the commodity market.

MG processes about 3.4 billion litres of milk, about 37 per cent of Australia’s raw milk. The co-operative has suppliers in Victoria, South Australia, NSW and Tasmania.