Synlait follows Fonterra with lower forecast farmgate payout

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Synlait Milk has cut its forecast payout to farmers for the current season, following Fonterra's lead, as weaker global demand and strong domestic production weighs on international prices.

The Rakaia-based milk producer expects to pay $6.25 per kilogram of milk solids for the 2019 season, down from its previous forecast of $6.75/kgMS. That projection will depend on commodity prices recovering for the rest of the season, something Synlait said it considers realistic.

The GDT price index rose 4.2 per cent, at the last Global Dairy Trade auction on Jan. 16, its fourth straight increase. The average price was US$3,057 per tonne, up from US$2,986 a tonne at the previous auction.

"Until recently, commodity prices have been declining for some time," chief executive Leon Clement said in a statement. "This is in part due to global demand reacting to very strong production from New Zealand carrying into summer, alongside expectations of better production growth out of the Northern Hemisphere."

Synlait's reduction follows an earlier move by dominant milk processor Fonterra, which lowered its forecast in December to $6.00-$6.30/kgMS from a prior range of $6.25-$6.50/kgMS.

Clement said the company had highlighted the chance of a lower payout at its annual meeting in November. Synlait's suppliers won't be surprised, given the company's regular communication about global price changes, he said.

Synlait bought 63.6 million kgMS from its farmer suppliers in the 2018 financial year. At that level of supply, farmers stand to receive $397.7 million from the lower milk price, compared to $429.6 million from the earlier forecast.

The company will review its forecast in May.

The shares last traded at $9.76, and have gained 8.4 per cent so far this year.