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Synlait's forecast ahead of Fonterra

NZ NewswireNZ Newswire 7/06/2016 Tina Morrison

Synlait Milk, the South Island-based milk processor, expects to pay its farmer suppliers 5.9 per cent more for the upcoming season than larger rival Fonterra.

Rakaia-based Synlait plans to pay its farmer suppliers $4.50 per kilogram of milk solids for the 2016/17 season, compared with Fonterra's $4.25/kgMS forecast.

DairyNZ estimating the average farmer needs $5.25/kgMS to break even.

Synlait lowered its forecast milk price for the 2015/16 season to $3.90/kgMS, in line with Fonterra's expected payout but down from the company's $4.20/kgMS estimate in February.

Open Country Dairy, the country's second-largest processor, has forecast $4.25-$4.45/kgMS for the 2016/17 season, up from an expected $3.85-$4.15/kgMS for the 2015/16 season.

Dairy products are New Zealand's largest commodity export and a global oversupply and weak demand has suppressed prices, pushed up dairy farm debt and caused much angst about the future outlook for the industry.

"Unfortunately, increasing milk production in Europe, soft demand from China and trade sanctions in place with Russia continue to be more important than reduced milk production in New Zealand," said Synlait chairman Graeme Milne.

Synlait said it will pay a higher advance rate for milk supply in the upcoming season to aid farmer cash flows through the winter.

The company expects to pay around $6 million of premiums to its suppliers in the current season, equating to about an extra 10 cents/kgMS, as it benefits from additional value coming from its sales of higher margin products.

Synlait is the exclusive manufacturer of A2 Platinum infant formula, sourced from herds that only produce A2 type beta-casein protein.

Shares in Synlait, which is 39 per cent owned by China's Bright Food, advanced 0.3 per cent to $3.06 and have slid 3.5 per cent this year.

The company expects to announce its final milk price for the 2015/16 season in late September, along with any revision to its 2016/17 forecast.

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