Payout perplexity – more money for farmers would impede Fonterra’s financial recovery

Synlait  Milk’s  updated forecast  milk price— now  $7.25kg/MS,  up  from $7kg/MS —renews pressure  on   Fonterra  to  hit the  upper limit of  its own  forecast.

For the industry  as a  whole,  the  higher milk payouts  underline  the strong  global demand for  NZ  dairy products.  And  they  provide  some welcome sunshine   into   many of the  county’s  dairy sheds.

When  Fonterra  in  December   flagged   it  was  aiming  for  the midpoint of  its  $7  to $7.60 forecast range, it  said that  a  $7.30 milk price  would be  the  fourth  highest   in its  nearly  two  decades  of  operation.

That  $7.30kg/MS  is  comfortably ahead  of  Dairy  NZ’s  estimate  of break-even  for Fonterra’s suppliers  of  $5.95.

But  now  Synlait is  saying  is it has  raised  its  forecast  payout on the back of  higher than expected commodity prices at the end of 2019.  It believes those will hold in the medium term as supply and demand continue to be evenly matched.