Sentiment among Synlait Milk’s South Island suppliers has significantly improved, as the company gives farmers ample time to decide whether to stay or exit the milk processor’s network. This shift comes after Synlait raised its forecast farmgate milk price to $9 per kilogramme of milk solids (kgMS), aligning it with Fonterra’s midpoint forecast.
As Synlait’s debt challenges intensified over the past year, a substantial majority of its farmers submitted their two-year cessation notices to withdraw their milk supply. The North Island supply has been transferred to Open Country following the suspension of milk processing at the Pōkeno facility.
Meanwhile, farmers in the South Island, which accounts for the bulk of Synlait’s milk supply, have been incentivised with a one-time payment of 20 cents per kilogramme of milk solids to continue their supply.
Charles Fergusson, Synlait’s Director of On-Farm Excellence, Business Sustainability, and Corporate Affairs, said that the company has been reviewing its contracts and closely monitoring the situation in China. He indicated that the demand signal has now reached a level that supports an outlook of $9/kgMS.
“What really helps on the milk price side of things is seeing Chinese demand for whole milk powder coming back, which is something that was a little bit absent last season,” he said.
The global dairy sector is currently experiencing what many analysts describe as a “new norm,” characterised by stagnant supply growth from traditional exporting regions. This marks a significant movement from historical patterns where surges in demand would typically lead to increased production as farmers sought to capitalise on higher prices.
At the latest Global Dairy Trade (GDT) auction, whole milk powder (WMP), which constitutes half of the auction’s volume and significantly influences farmgate prices, saw a notable increase of 3%, reaching an average price of US$3559 per metric tonne (MT)—the highest average in two years.
Milk production has commenced strongly this season, aided by favourable conditions such as early calving and robust grass growth. Data from the Dairy Companies Association of New Zealand indicates that August’s production rose by 10% compared to the same month in 2023, totalling 123.8 million kilogrammes of milk solids (kgMS).
Synlait’s operations in the South Island report particularly strong production levels, especially in mid-Canterbury, where early season yields have put pressure on manufacturing teams due to high milk volumes arriving at processing facilities.
Also, the company’s $218 million capital raise, approved by shareholders in September, has now been successfully completed. Bright Dairy’s increased shareholding is now in effect, and the dispute with The a2 Milk Company has been officially resolved.