What Would Synlait Be Worth to Fonterra or a2 Milk?
Speculation of a possible joint move by Fonterra and a2 Milk to buy Synlait raises a much bigger strategic question, says agribusiness expert Dr Nic Lees.
Last week the co-operative announced its 2022/23 opening forecast farmgate milk price, set at a range of $8.25 - $9.75/kgMS, with a midpoint of $9/kgMS.
The co-op is maintaining its 2021-22 forecast price of $9.10 - $9.50/kgMS. At a midpoint of $9.30/kgMS, this would be the highest forecast milk price in the co-op's history.
Chief executive Miles Hurrell says this would see the co-op contribute almost $14 billion into the New Zealand economy through milk price payments.
Dairy prices have eased in recent Global Dairy Trade (GDT) auction, however prices are expected to remain at historically high levels due to subdued supply and surging demand.
China's recent lockdowns of cities hit by Omicron has created a dip in demand but this is expected to be short lived.
Hurrell says the strong opening forecast reflects continued demand for dairy coupled with contstrained global supply.
"The long-term outlook for dairy remains positive, despite recent geopolitical and Covid-19 related events impacting global demand in the short-term.
"On the supply side, growth from key milk producing regions is expected to remain constrained as high feed, fertiliser and energy costs continue to impact production volumes.
"These demand and supply dynamics are expected to support dairy prices in the medium to long-term."
But Hurrell warns that we are in an increasingly volatile global environment and are managing a wider range of risks than usual.
This includes the potential for further impacts from Covid-19, financial markets and foreign exchange volatility, global inflationary pressures, a tightening labour market, increasing interest rates, geopolitical events, as well as the possible impact on demand from higher dairy prices.
"This is why our 2022-23 forecast range is so wide at this point in the season," he adds.
