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.
Under the Dairy Industry Restructuring Act, Fonterra is required to update its current season forecast milk volumes by early September.
Group director cooperative affairs Miles Hurrell says although Fonterra had forecast a 2-3% decline in volumes there was evidence farmers were pulling back on production, which could lead to a further downward revision of forecast volumes as the season progresses.
“Farmers are responding to the lower forecast farmgate milk price by returning to more traditional farming practices. They are reducing the use of feed supplements, and lowering stocking rates per hectare as they concentrate on utilising pasture,” says Hurrell.
“Market data from several independent sources show that cows are being culled at higher rates than last season while many of our farmers are also providing early advice that they are expecting significant year on year volume reductions.
“In addition, currently our daily milk collection average is lower than for the same period last year.”
Hurrell says given these variable factors, Fonterra had decided to maintain its current forecast milk volume at this stage.
However, he adds, “It is still early in the season, and any forecast at this point is very dependent on weather conditions, which have so far been poor for production”.
