Ok supplier letter out - lets look into it - available here ->
http://www.mgc.com.au/media/34552/MSSP-Opt-out-Letter-to-Suppliers-FINAL.pdf
1. Some farmers are trying to pay back the difference in pricing earlier rather than spread it over 3 years or even better still quit MGC and not pay anything! .. why would they want to pay it back early and not have in this in further years? TAX. if they are worried about TAX, it means they have made good money this year and want to minimize their tax bill.
2. The farmers are not doing it too tough vs forecasts - for the remainder of 2016 they will be paid 5.49(vs 5.60 opening/expected price)... 2% reduction! big deal.
3. going forward, for the next 3 years, farmers will receive 18 to 24 cents less than the "official farmgate" price. Again - given that this will likely be in the region of $5 - this is around 3.5% to 5% less than expected. OK so its not insignificant, but its hardly a huge reduction.
4. IF MG's value adding strategy works, and they do get large china sales or global milk prices rise - again this discount of 18-24cents could seem insignificant if we approach $6. Unlikely, but possible
5. "MG’s strong balance sheet, which means that suppliers are not required to take on any additional debt. " note - "STRONG" ... and fact that farmers take on no additional debt.
6. MG reserves the right to pay off the debt earlier if market conditions are favourable. ($100to $170m)
My thoughts -> I think its positive that farmers want to pay off any overpayments this year - it shows commitment to MGC and also that they aren't struggling as much as the media is making out. MGC has done a good job by the farmers by minimizing impact on them (perhaps because the board is majority farmers).
The impact the media has had on this is absolutely uncalled for and I believe the farmers believe in the way they have shifted away from commodity markets to higher value dairy foods.
I maintain my bullish outlook, and believe dividend will be maintained (7+cents this year & 9 cents next year - equating to a 9% fully franked div @ $1 share price. Attractive & in my view maintainable.
