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.
He expects farmers to use the extra income to reduce debt and improve the environmental footprints of their business.
"I also expectsome to spend on productivity improvements and some well-earned spending on things to improve their lifestyle," Long told Rural News.
"The forecast payout is very positive, but necessary given soaring inflation of input costs."
Long points out that soaring costs and worker shortages remain the biggest challenges facing local farmers, who endured a severe drought in the previous two seasons.
Fonterra's latest milk price forecast for the season is in the range of $8.90 to $9.50/kgMS, with a mid-point of $9.20/kgMS.
For Northland, based on milk production of around 81 million kgMS at $9.20 payout would pump nearly $750 million into the region's economy.
BNZ economist Doug Steel notes that dairy prices have started the New Year in fine form, pushing higher from the already elevated levels reached in 2021.
"Prices are 28% above a year ago, nearly 38% higher than their 5-year average, and at their highest level since 2014," notes Steel.
An expected 4% drop in NZ milk production is one of the factors keeping the milk price at record levels.
"While there is some rain in the near-term forecast, we expect NZ milk production to remain below last year's strong late season outcomes over coming months such that the full season will be down in the order of 4% or more," he says. Milk production in key overseas markets - the US and Europe - is also spluttering. Tighter supply is also pushing prices up.
But Steel says there are some downward risks as well - China's growth could be slower than anticipated and Omicron is still looming large around the globe.
But for now, at least, milk price prospects are strong.
"For farmers facing such things as variable weather, higher costs, rising interest rates, proposed options to price agricultural emissions, an exceptionally tight labour market, and the possibility of significant disruption from Omicron circulating in the community - it is good to take one thing off the worry list."
Having been hit by a severe drought over the previous two seasons, Northland's milk production is tracking well.
Long says Northland's climate is highly variable.
"I think after a difficult start to the season most farms will be having at least average production," he says.
However, like most other growers, they are also facing soaring input costs.
On his farm at Matapouri, eastern Whangarei Long milks 200 cows and hopes to supply 65,000 kgMS this season.
"We are rebuilding after two years of quite intense drought," he says.
