Synlait lifts its forecast milk price

In an NZX announcement, Synlait says dairy commodity prices have recovered after significant declines in August, and continued US dollar strength underpins the increase in its forecast base milk price. However, the company notes that the second half of the season is still to come.

“Forecast confidence will improve, particularly through the peak milk months, as the remaining product is contracted,” it says. “The revised forecast milk price aims to provide reassurance to Synlait farmer suppliers operating under tough economic market conditions.”

Synlait’s revised forecast milk price brings it on par with Fonterra, which raised its forecast milk price range $6.50 - $8/kgMS, with a new midpoint of $7.25/kgMS, up 50 cents. The co-op says the improved outlook reflects both supply and demand dynamics.

Westpac senior agri economist Nathan Penny believes that a betterthan- expected start to milk production in New Zealand has softened global dairy prices. He noted that prices have softened a touch over November, after strong results over September and October. For example, whole milk powder fell 0.9% over the month from the end of October.

“Dairy markets previously had been factoring in drought risk on the back of the El Nino weather pattern,” Penny says. “In our view, this has been overdone and may explain the pullback in prices over November. New Zealand water tables are generally very high and most farmers have ample feed on hand. This will help mitigate or dampen any drought impact.”

Penny also notes that New Zealand spring production has started on a firm note, with September production up 1.3% compared to September 2022. A similar lift over October is on the cards.

Last week’s GDT auction price index remained unchanged. In contrast, WMP prices lifted 1.9%.

By product, the result was mixed. Three price rises were matched by three price falls.

Lactose prices led the way, jumping 6.4%, while anhydrous milk fat prices also rose (0.9%). Cheese prices headed the other way, slipping 9.7%.

Skim milk powder and butter prices also dipped, 3.8% and 1.1%, respectively.

Westpac is sticking to its milk price forecast for this season at $7.25/ kgMS. ASB has a slighter optimistic view and is forecasting a milk price of $7.35/kgMS.

ASB economist Nat Keall says not much has changed on the dairy outlook in their view. Tighter supply has helped prices, but the economic outlook is subdued, and the global demand-supply balance isn’t likely to drive a stronger recovery in prices yet.

Meanwhile, Chinese demand is hinting at a pickup but it’s too early to start celebrating. Penny says recent economic data have been more positive so this may translate into higher demand over time.

“However, on balance, we remain cautious. There have been both positive and negative developments since we lifted our milk price forecast on 18 October, and these have largely cancelled each other out,” he says.