Murray Goulburn co-operative has bowed to intense market pressure from rival dairy companies and rushed to upgrade its farmgate milk price for southern suppliers, lifting its opening payment 50 cents a kilogram.
In a letter to shareholders the big co-op has advised its 2017-18 season opening price in to Victorian, southern NSW, South Australian and Tasmanian suppliers will now be 5.20/kg of milk solids (MS).
The payment includes the company’s reward program and other incentives.
Just two weeks ago Murray Goulburn (MG) surprised the industry with an earlier than normal opening price of $4.70/kg.
The early MG price was quickly followed by much higher offers above $5 from competitors, including Fonterra, Bega Cheese and Warrnambool Cheese and Butter (WCB), all of whom are keen to recruit extra suppliers from struggling MG.
“MG recognises in the current competitive environment it needs to maintain milk supply and provide improved cash flow for suppliers,” the company conceded in its letter.
“The decision to revise the opening price to $5.20/kg MS is intended to assist in maintaining competitiveness and support the supplier base.”
MG, the business behind the big Devondale brand, said the updated farmgate price also took into account improved commodity prices reflecting anticipated market returns, together with additional contracted sales.
It said the co-op’s full-year payment range was now $5.20 to $5.50/kg.
MG said the previous opening price announcement was earlier than prior years in order to try to assist suppliers with budgeting and business planning.
Since then, it had had the opportunity to review its 2017-18 budget assumptions, which included dairy commodity prices, exchange rates and achieving its cost cost cutting initiatives.
It had also reviewed its chances of achieving a planned milk intake of approximately 2.5 billion litres with the original payment price.
Bega had offered $5.50/kg just a day after the first MG price was posted and Fonterra quickly followed saying it would pay its 1200 farmer suppliers at least $5.30.
WCB also quickly raised the stakes to matched Bega.