1 Feb 2016

Synlait Milk cuts payout forecast to $4.20

2:22 pm on 1 February 2016

Small Canterbury-based dairy company Synlait has slashed its forecast milk payout by 16 percent because of weak global prices.

Organic Jersey cow on a Rongotea farm.

Photo: RNZ / Alexander Robertson

The company, which has only a couple of hundred suppliers, has cut its forecast to $4.20 a kilogram of milk solids from the previous $5.00 per kg.

Chairman Graeme Milne said it had expected global prices to pick up but the recovery would be slower than anticipated.

"Similar to this time last year, there is still a lot of uncertainty. While our business is focused on value added products, global commodity pricing is the main driver behind the milk price that our suppliers receive."

He said the global dairy trade was being affected by a glut of milk, caused by higher production in Europe and the United States, while demand in key markets such as China remained subdued.

Synlait chief executive John Penno said it was likely the more than 170 farmer suppliers would be losing money at these prices.

"This is being driven out of the international commodity markets and essentially the whole industry is...agreeing where the milk price is going to end up."

Dairy farmers would be disappointed, he said.

"Looking forward it is very uncertain. Milk production is continuing to increase in the northern hemisphere and that's outstripping demand for extra milk.

"Sooner or later farmers will adjust to the low prices, produce a little less and prices will come up. We're just not sure when that will happen."

The company's infant formula programme is growing strongly, providing a 10 cent premium on top of the $4.20 forecast payout, he said.

Synlait will review the forecast again in May.

Synlait is the fourth dairy company in the past three weeks to cut its forecast payout - following Fonterra, Westland Milk Products and Open Country.

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