Australia's Largest Dairy Processor Cuts Profit Forecast

HONG KONG—The listed shares of Australia's largest dairy processor Murray Goulburn Co-Operative Co. dropped sharply after the company reduced its net-profit forecast due to the stronger Australian dollar, low commodity prices and a fall in demand for its higher-margin products.

Net profit for the year to June 30 2016 is now expected to be between 39 million Australian dollars (US$30 million) and A$42 million dollars, the company said in a statement. In February the company said it expected net profit of approximately A$63 million.

While not listed, the cooperative has listed a nonvoting trust on the Australian Stock Exchange which provides investors with exposure to the company and pays dividends while leaving control of the 100-year dairy company in the hands of its more than 2,600 farmer shareholders.

Shares in the MG Unit trust resumed trading Wednesday morning, falling to A$1.40 from A$2.14 before the trust's trading suspension last week.

The dairy company, which processes more than a third of Australia's milk, is a victim of the continuing slump in dairy prices over the last two years which is causing issues for farmers across the globe, as returns fall below the cost of production.

The GlobalDairyTrade index, widely considered a market reference price for dairy products, is now less than half of what it was at its peak in 2014 with the index currently at US$2,263 a metric ton.

The slump is due to subdued demand from important markets such as China and the Middle East, a glut sparked by Russia's ban on U.S. and European food imports, and world-wide overproduction partly due to the removal of quotas on dairy production in the European Union.

Murray Goulburn has also revised what it expects to pay its farmers for their milk for the year, to between A$4.75 and A$5.00 a kilogram of milk solid down from the previous forecast payout of A$5.60 a kilogram of milk solid. However, the company has introduced a package to support farmers which will see farmers receive the cash equivalent of A$5.47 a kilogram of milk solid.

Following the announcement both Murray Goulburn's managing director Gary Helou and chief financial officer Brad Hingle resigned from their positions, although they will remain with the company to help with the transition.

Write to Lucy Craymer at [e-mail]

(END) Dow Jones Newswires

April 27, 2016 00:05 ET (04:05 GMT)

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