Bega Cheese steps up farmgate milk price as share price dives

Bega Cheese has lifted its farmgate milk price to secure supply. How does it compare to that offered by other processors?

Tough times: Bega Cheese executive chairman Barry Irvin has been forced to lift his farmers milk price, as he warns the market of an earnings downgrade. Picture: Nikki Short

Bega Cheese has announced a 15 cents a kilogram of milk solids step up from January 1 for all suppliers as it tries to maintain supply in a highly competitive market.

However the step-up only applies from January to June 30 and is not retrospective.

The move comes as Bega’s share price tumbled today from $5.61 at the opening to close at $5.04 today, after it announced an earnings downgrade in the wake of Covid disruptions and as it tries to shore up milk supplies.

Bega executive chairman Barry Irvin issued a letter to shareholders stating “we are pleased to be in a position to announce a further milk price increase particularly in the context of the difficult business circumstances we are currently operating in as a result of the impacts of COVID‐19.

At the same time he told the ASX “the short-term impacts of Covid and a highly competitive milk procurement environment are expected to impact financial year 2022 earnings, with the company forecasting a normalised EBITA in the range of $195m to $215m”.

The Australian reported the forecast range was 7.5 per cent below the market’s previous consensus estimate of $221.7m, according to Bloomberg.

Mr Irvin told farmer suppliers “as has been well publicised, COVID‐19 impacts include restrictions and shutdowns impacting local trade, shipment delays to international markets and additional direct and indirect costs to ensure business continuity in our operations.

“The company’s focus has very much been on keeping everyone in our supply chain safe and making whatever changes were necessary to ensure our products were delivered to our customers in Australia and around the world.”

Bega is particularly vulnerable to competition for milk supply, given it allows suppliers on their non-exclusive milk supply agreements to withdraw at any time.

The step up appears to be an attempt by Bega to keep farmer supplies on board as competition heats up in the higher-priced second half of the dairy season.

MILK PRICE CALCULATOR