What Would Synlait Be Worth to Fonterra or a2 Milk?
Speculation of a possible joint move by Fonterra and a2 Milk to buy Synlait raises a much bigger strategic question, says agribusiness expert Dr Nic Lees.
That's how Fonterra farmers describe the co-op's 2024 annual results, a surprise additional 15c/share dividend for farmers and unit holders and a 50c boost to this season's farmgate milk price and mid-point, bumping it up to $9/kgMS.
High input costs and soaring interest rates over the past few years pushed many farmers into the red.
Waikato sharemilker Matthew Zonderop says the latest results "are an absolute game changer for the farming community and NZ".
"Those of us with overdrafts and high debts can finally see the light at the end of the tunnel and start to go back into the black which is a huge positive for farming as we have been under the pump for a few years with high farm working expenses and interest costs," Zonderop told Dairy News.
"This is a win-win for all New Zealand as the farmer can spend some of their money back into the rural communities which helps drive the NZ economy."
Fonterra posted a net profit of $1.1 billion for the financial year ending July 31, 2024. The co-op's final milk price for 2023-24 season is $7.83/kgMS, backed by a total dividend of 55c/share, providing a total cash payout to a fully shared up farmer of $8.38/kgMS.
For this season, Fonterra is forecasting a milk price mid-point of $9/kgMS, the second highest milk price on record.
Federated Farmers dairy chair Richard McIntyre also points out that with the higher forecast milk price and higher advance rate, more money will be flowing back into the rural communities.
"This will mean a lot of money coming in to rural communities where it will bounce around multiple times and improve the bottom lines of rural businesses and the rural economy," he told Dairy News.
"It's important to remember that a strong well performing Fonterra is good for all NZ dairy farmers, not just Fonterra suppliers. Because Fonterra is the benchmark that the other independent processors compete against.
"So, when Fonterra's performing well, they must lift their performance to remain competitive and retain suppliers. This will give a huge boost to dairy farmer confidence."
Fonterra Co-operative Council chair John Stevenson says the feedback from farmers is that they are "really happy" with the results.
He says the extra 15c/share dividend was unexpected. Fonterra had signalled a strong balance sheet to farmer shareholders, but no one expected an extra dividend, he says.
However, Stevenson cautioned farmers that the final milk price for this season wouldn't be known until this time next year.
"We urge farmers to keep a keen eye on volatility," he says.
Asked if a $9 forecast milk price was a game changer for farmers, Fonterra chair Peter McBride noted that "while it helps the $9 is not the old $9".
He points out that on farm costs are now a lot higher.
"If you look at fertiliser and labour costs on farm, all those input costs have been pretty much out of control in the last three years," he says.
"It's starting to abate now, and farm margins are starting to improve again.
"I think it takes us a long way in the right direction. Farmers will be pleased with our advance rate and cash flow is very important."
