Pressure is on other processors to match Fonterra and Synlait on milk price forecasts

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.