Rising milk price may slice Bega’s profits

Bega Cheese is leaving behind some of the cost pressures it faced during the Covid-19 pandemic, but is now facing rising milk prices from robust competition amongst dairy processors for available milk.

The company told investors today that disruptions from the war in Ukraine, the impact of Covid-19 lockdowns in Shanghai on deliveries to China and floods across several regions were ‘resolving’.

“Bega Cheese has now been able to pass through many of the increased business costs it experienced in FY22 in the form of higher wholesale and retail prices, or mitigate the impact through various initiatives.”

Bega cut its guidance for FY22 EBITDA to the range of $160 million to $190 million, from the $175 to $190 million it set April.

The company said Australia’s largest milk producing area in Victoria had been expected to experience a farm gate milk price increase of up to 20 percent this financial year.

The result of the strength of global dairy commodity markets and currency relativities, this increase was reflected in Bega’s initial milk prices for the year announced on June 1.

“However, after the release of those initial prices there has been particularly strong competition amongst milk processors during June and July, and farm gate prices for Victoria in FY23 have further increased to a level of approximately 30 percent higher than FY22 prices.

“The farm gate price increases will benefit farmer suppliers, impact all Australian dairy companies, and is already being reflected in higher product prices in the retail and food service segment.”

Bega said it was positioned well to recover the higher costs associated with the increase in farm gate prices.

Picture: Bega Cheese

Subscribe to our free @AuManufacturing newsletter here.