Strong production, tested demand send milk prices crashing
Strong global milk production and rebalancing of demand among key buyers has delivered one of the biggest drops in whole milk powder prices in recent years.
"Despite the small recovery in commodity prices we saw earlier this year, the market has not delivered the stability we had hoped for," says managing director John Penno.
"We're very aware of how financially tough this current season is for our suppliers. We are confident commodity prices will recover over time and our 2015/2016 forecast milk price assumes we will see the beginning of this recovery from the current low prices.
"The global oversupply is being met by soft demand across the board. This creates a lot of uncertainty in an already volatile market, so it will remain a fragile environment for the immediate future."
Factors contributing to the global oversupply include Russia's ban on dairy imports, the removal of dairy quotas in Europe and low demand from China, says Penno.
"The important thing with our 2015/2016 forecast is the associated cash flow our suppliers will receive through advance rates."
Penno says Synlait has deliberately started advance rates higher than usual to assist farmers with cash flows through the early spring. They will return to normal levels based on the forecast milk price soon after.
"Our suppliers' needs are front of mind and we're keeping a very close eye on the market to make the most informed decisions we can."
Synlait has also revised the forecast milk price for the current 2014/2015 season down from a range of $4.50 - $4.70/kgMS to a range of $4.40 - $4.60/ kgMS. Retrospective payments to suppliers for the current season remain unchanged until the final payment in October.
Synlait expects to announce the final milk price for the 2014/2015 season in late September, along with an update to the 2015/2016 forecast milk price and advance rates.
