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.
The co-operative’s new forecast price range is $8 to $8.60/kgMS, from $8.20 - $8.80/kgMS. This reduces the midpoint of the range by 20 cents from $8.50 to $8.30/kgMS.
Fonterra reduced its forecast milk price by 30c in February.
Fonterra chief executive Miles Hurrell says the latest change reflects short-term demand for products that inform the co-op’s farmgate milk price being softer than expected.
“Since our last update in February, prices for our products on Global Dairy Trade have either declined or remained flat.
“Skim milk powder prices have fallen 7% since February, and whole milk powder prices have not lifted to the levels assumed in the previous forecast.”
Hurrell says there are two main drivers behind this. The first is demand from China for whole milk powder has not yet returned to expected levels. The second is Northern Hemisphere milk production, and therefore skim milk powder stocks, are increasing as they head into their Spring flush.
“With these factors weighing on demand, prices have not increased to the levels required to sustain a higher forecast Farmgate Milk Price for this season,” he says.
“We recognise this change has an impact on our farmers’ businesses, at a time when many are facing increasing costs.
“To assist on-farm cash flow, we are adjusting the Advance Rate schedule, which is the proportion of the season’s farmgate milk price paid to farmers each month, to get cash to our farmers earlier. We have increased the March paid April payment and plan to hold payments at that level until June.
“We are able to do this because of the strength of the co-op’s balance sheet, which is further supported by our strong full year earnings forecast.”
