It has been a difficult 12 months for Australia’s largest dairy processor, Murray Goulburn. At the outset of its 2016 financial year this time last year, Murray Goulburn management were confident the group could achieve net profits of close to A$90m (€60m) and pay farmer suppliers a milk price of A$6/kg (28c/litre) on the back of strong demand from China.

However, as the downturn in dairy markets began to take hold, Murray Goulburn was forced to slash farmgate milk prices by 40% to a range between A$4.75/kg (22c/litre) and A$5/kg (23c/litre), as well as sharply lower its profit forecasts to between A$39m (€26m) and A$42m (€28m).

The result caused an outpouring of anger among Australian dairy farmers and saw Murray Goulburn’s share price plunge by more than 60% in May this year. This ultimately resulted in the resignations of the company’s chief executive and chief financial officer after the company admitted it was paying too much for milk.

Year-end results

With a new management team in place, Murray Goulburn released results for its 2016 financial year to the end of June on Thursday. While total group sales were back slightly (-3%) to A$2.8bn (€1.9bn), the group’s net profit for the year came in just below A$40m (€27m).

While this may be in line with the revised target profit range of the new management, it is well short of the A$90m in net profits targeted at the beginning of the year.

This recovery comes at a time before peak production in Australia and New Zealand and only a sustained recovery through those peaks will add meaningfully to milk price returns

David Mallinson, the man who stepped in to fill the role as interim chief executive at Murray Goulburn, said the trading environment remains challenging for the group thanks to a strong Australian dollar and global markets still oversupplied for dairy.

“Commodity prices have shown some upward momentum in August, with recent Global Dairy Trade results showing recovery across most commodities,” said Mallinson. “This recovery comes at a time before peak production in Australia and New Zealand and only a sustained recovery through those peaks will add meaningfully to milk price returns,” he added.

Subdued outlook

Murray Goulburn ended up paying a finalised average milk price of A$4.80/kg (22.3c/litre) for its 2016 financial year. However, the company did support dairy farmer suppliers to the tune of A$183m (€123m). With these supports included, average farmgate prices were closer to A$5.53/kg (25.7c/litre).

However, with the outlook of Murray Goulburn management now more subdued and grounded in the reality of dairy market returns, the Australian processor has issued a very cautious forecast for its farmgate milk price for the 2017 milking season of A$4.31/kg (20c/litre).

Although Murray Goulburn has said it expects milk prices to rise to A$4.80/kg (22.3c/litre) as the milking season progresses, this is still below the cost of production for Australian dairy farmers estimated between 23c/litre and 24c/litre.