Competition for raw milk supplies has sharpened as Synlait Milk has joined Fonterra with a milk price forecast for the new dairy season at $9.50kg/MS.
Earlier the company had announced a milk price for the 2022-23 season at $9kg/MS, but the outlook has got even better since then, with foreign exchange movements further supporting a strong milk price.
The upgraded price is a record for the company.
Synlait CEO Grant Watson says the forecasted lift in milk price reflects an improved outlook for 2022/23 dairy commodity prices, following the recent recovery in pricing, and the current strength of the US dollar.
“Over the next two days we’ll be meeting with our farmers at annual events in the Waikato and Canterbury and it will be great to share this news with them.”
There was no change to its forecast milk price for the 2021/2022 dairy season, which remains at $9.30 kg/MS.
With both Synlait and Fonterra racing to set their forecasts so high at the beginning of a new season, the pressure goes on other processors to match them.
Fonterra’s CEO Miles Hurrell noted how “a series of global events” had changed some of the assumptions on which Fonterra’s on which its aspirations were based.
“In particular, interest rates and inflation have lifted well above our assumptions, as have commodity prices in response to the continued strong demand for dairy. This feeds into the farmgate milk price expectations, which can be seen in our updated forecast of the 2022/23 milk price range”.
Hurrell says while the co-op is in a position to be forecasting both solid earnings and a healthy milk price for the next year, significant volatility remains. The near-term headwinds have the potential to impact some of the co-op’s targets.
What is remarkable is that the high price comes at a time when the rest of the economy is under strain, facing inflationary pressures and even possibly a recession.
The dairy industry, too, is subject to rising cost pressures, as well as the prospect of methane emission charges. But at least the high payouts provide the incentive to ensure the gains in efficiency individual farmers have achieved are sustained.