Murray Goulburn pricing a nasty shock for suppliers

By Ross McInnes, QDO Vice-President

Murray Goulburn’s opening price of $4.31kg milk solids has sent a collective shudder through the Australian dairy industry. The beleaguered co-op’s price will make it extremely difficult for many suppliers to financially survive. 

Opening prices had generally varied from $4.40 to $5kg, but the ripple effect of the MG price will spread far wider than first thought. Supplier meetings last week were told the Qld price appeared steady for this year UNLESS the MG price in NSW dropped dramatically.

Unfortunately part of the MG announcement stated a drop of over 3 cents per litre to their NSW suppliers. At this time it is unknown whether this will extend the ripple effect into Queensland. Industry briefings in the past two weeks indicated a southern price range for this year of $4.80 – $5.20kg (37 – 40 cents) and there may besome short term temptation for northern processors to access more milk from that market.

There are four clear reasons why the holding of the northern price is so important. First, the market signals that this would send to Qld farmers, and no doubt some farms would reassess their future in the industry with any price drop. 

Secondly, the outlook for 2017/18 appears much stronger with an indicative price range of $5.80 – $6.30 with stocks of dairy product around the world starting to reduce.

Thirdly, Dairy Australia’s prediction of lower volumes by 3-4 per centover the next 12 months mean fewer options for accessingspare milk. With this announcement this prediction is likely to be conservative.

And lastly, announcing a drop in price into a fresh milk market after the strong support for branded product sends a confusing message to the consumer.

There is one sector that has a positive and perverse outcome from this and no prizes for guessing the retail sector. The rise and fall clauses on these margin contracts mean the retailers will now reap extra profits out of $1 milk from an industry on its knees.