Synlait lowers season's payout to farmers in response to market prices

Synlait's infant formula plant, Rakaia. Its 200 suppliers are drawn from the surrounding region.

Synlait's infant formula plant, Rakaia. Its 200 suppliers are drawn from the surrounding region.

Synlait Milk has lowered its forecast price for the 2016-17 season to $6.15 per kilogram of milksolids because of what it calls a "significant" drop in the dairy market.

It said there had been falls in the prices of commodity prices in February and March, in particular whole milk powder.

In February the Canterbury-based company had set the price at $6.25 kg/MS.

Synlait CEO John Penno says a drop in dairy prices at the beginning of the year had forced the company to lower its ...

Synlait CEO John Penno says a drop in dairy prices at the beginning of the year had forced the company to lower its forecast payout to farmers.

"While commodity prices have improved since March, they are still below the level required to support a $6.25 kg/MS milk price. As most dairy products are sold earlier in the season (based on seasonal production volumes), improvements in commodity prices later in the season have less of an impact."

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"We pay our suppliers a fair price for their milk based on our estimate of the market price for milk. A key input into our estimate of the market price of milk is the commodity price achieved at auction, both historical and forecast," Synlait said in a statement.

Some of Synlait's farmers receive an additional boost of 14c per kg/MS for providing milk for its special milk programmes, which include a2 Milk, Grass Fed and Lead With Pride, bringing their total payout to $6.29.

The premium for supplying this special milk has risen from 11c paid out in the 2015-16 season. Of the approximately 200 farmers supplying Synlait, more than half qualify for the premium.

By contrast Fonterra maintained a more cautious $6 kg/MS figure throughout this season before lifting its 2016-17 forecast payment to $6.15 in late May, plus an earnings guidance of 45-55c per share.

A Synlait spokeswoman said the company had hoped to stay higher but market conditions dictated otherwise.

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Chief executive John Penno said Synlait had been signalling to its milk suppliers the $6.25 kgMS forecast was under pressure due to "the rapid market downturn".

"Gradual price improvements at the end of the season have made up some of the losses taken in March, but those improvements have been too late in the season to maintain the $6.25 kgMS forecast."

"It is a forecast and while things can change, we communicate regularly with our milk suppliers so they aren't taken by surprise. Many of them will have anticipated this update," Penno said.

Synlait's final milk price for the 2016-2017 season will be confirmed in late September.

Two weeks ago Synlait announced a forecast milk price for the 2017-2018 season of $6.50 kg/MS, matching Fonterra's price.

 - Stuff

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