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.
Fonterra has announced a 25c lift in the mid-point of its 2020-21 forecast to $6.40/kgMS - the new range is $5.90 to $6.90/kgMS.
Fonterra chairman John Monaghan says the lift to the bottom end of the range was being predominantly driven by improved market conditions in China.
“After an initial shock due to COVID-19, dairy consumption in China is recovering with more people spending on food. We’re seeing customers ramp up promotional activity as they look to catch up on the sales losses incurred over lockdown,” Monaghan says.
“Elsewhere, the EU and US Governments’ support measures for farmers are holding up milk production and dairy commodity prices despite the disruption they have experienced so far from COVID-19. While we expect these support measures to end at some point, it is likely they will continue through the peak of the New Zealand season.
“While there is still a high level of uncertainty in our global markets, we do see a lowering level of risk and this supports a decision to lift the bottom end of the price range.”
The 2020-21 started June 1. Monaghan says it’s very early in the new season and the co-op is keeping a close eye on consumer demand and production from the key milk producing regions.
Milk supply from the EU, US and Latin America is increasing despite the impact of COVID-19, and there continues to be uncertainty around how the global recession and the potential for a second wave of COVID-19 globally could impact demand.
Monaghan sys the co-op is advising its farmers to continue budgeting with caution.
Meanwhile the co-op has lowered its 2019-20 forecast milk price by 5c to a mid-point of $7.15/kgMS.
The co-op is blaming a strong NZ dollar for the small drop.
