ANZ Warns of Milk Price Risks as New Dairy Season Begins
The new dairy season is kicking off with plenty of risks to the forecast farmgate price, both upside and downside, says ANZ agricultural economist Matt Dilly.
Synlait chairman Graeme Milne says another "tough" season will be slightly offset for Synlait suppliers as they'll start the season in a stronger cashflow position than they were expecting.
"Cashflow is really important at this time of year and we've prioritised a significantly higher advance rate for our milk suppliers' benefit," says Milne.
He says low global commodity values continue to drive low milk prices, and milk production in New Zealand has started to ease in response.
"Unfortunately, increasing milk production in Europe, soft demand from China and trade sanctions in place with Russia [maintain a greater effect] than reduced milk production in NZ," says Milne.
"We expect our milk suppliers will continue to reduce production next season, however we've planned for this by increasing the number of farmer suppliers and are confident we have sufficient milk supply to keep meeting strong demand from our customers."
Synlait's forecast milk price for the current 2015-16 season has been revised to $3.90/kgMS.
Managing director and chief executive John Penno says Synlait has also adjusted payments for the current season to give suppliers better cashflow through the winter.
"This announcement won't be a surprise to our farmers. Every month we provide detailed market information to our milk suppliers, showing where our milk price is likely to land for the current season," says Penno.
"Information like this is critical for good business planning and we're encouraging our suppliers to keep using this information to plan their way through this difficult period of low milk prices.
"We remain committed to helping our milk suppliers where we can. This includes premium payments, which we expect to be around $6 million this season, for creating value on their farm through Lead With Pride and our Special Milk programmes.
"We estimate these premiums will add, on average, $0.10/kgMS to our forecast milk price for 2015-16."
Synlait will announce the final milk price for the 2015-16 season in late September, plus any revision to the 2016-17 forecast milk price.
Fonterra opened with a forecast farmgate milk price of $4.25/kgMS for the 2016-17 season, plus earnings per share to be announced in July.
Westland Milk Products released a budget for the 2016-17 dairy season of $4.55 - $4.95/kgMS.
