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 the reaction from Federated Farmers dairy chair Richard McIntyre to last week's strong lift in global dairy prices.
McIntyre says the latest Global Dairy Trade (GDT) auction result will bring relief to farmers in the middle of calving.
He says many farmers still remember what happened to prices a year ago.
"What a difference a year can make. It's a very good result and farmers in the middle of calving will be happy and find relief," he told Rural News.
"Anytime the price goes up, farmers are happy, but they only hope the prices will remain at these levels."
In the first GDT auction in August last year, the price index dropped 4.3% and the crucial whol milk powder (WMP) price slumped 8%. The second auction last year wasn't any better: the price index dropped 7.4% and WMP dropped a whopping 10.9%.
However, last week's GDT results was a cracker: The price index rose 5.5% and WMP rose 7.2% to US$3,482/metric tonne.
Westpac's chief economist Kelly Eckhold describes the latest GDT auction as a stunner. He says prices rose strongly, more or less across the board, driven by the continued return of Chinese buyers in the whole milk and skim milk products.
"Futures markets had indicated a strong auction was in the offing and [they] were right. This was the strongest auction we have seen since 2022," he says.
"If prices can sustain these levels, then the upside risks to our 2024/25 milk price forecast of $8.40 are firmly back in play. We will be looking for Fonterra to provide an update on their current $8 (mid-point) guidance, with an expectation this will lift at least a bit."
NZX dairy analyst Rosalind Crickett notes that the GDT index rise was its single biggest percentage jump since March 2021. Crickett says the results were in-line with expectations.
She says the bullish market sentiment translate into tangible returns for all products on offer this time, aside from cheddar, which remained flat with a slight (0.2%) decrease in pricing. On this occasion 88% of the 39,666 tonnes of product on offer was sold.
Whole milk powder (WMP) led the way up, bolting 7.2% to settle at its highest average price since October 2022 at US$3,482/t. Skim milk powder (SMP) prices were similarly bullish, up 4% on this occasion to land at US$2,636/t - making a recovery after prices fell in July.
Milk fats also saw steady gains, with anhydrous milk fat (AMF) up 4.8% to US$7,244/t - its fourth highest average price point seen on the GDT platform. Butter also rose 3.7% to US$6,706/t.
Crickett says North Asia maintained a notable presence again at this auction taking the lion's share of milk powders, butter and lactose - the catalyst behind the price increases - absorbing approximately half of all products on offer.
"The total purchase volume by the main bidding regions North Asia and Southeast Asia/Oceania was also up, when looking at the equivalent event last year."
Crickett says all eyes will now be on Fonterra when it next provides an update on its farmgate milk price forecast for the 2024-25 season.
