Synlait, Westland spruik higher milk payments for farmers in upcoming season

Friday 1st June 2018

South Island dairy processors Synlait Milk and Westland Milk Products have raised their forecast milk payment levels to their farmer suppliers for the upcoming season, following a similar move last month by larger rival Fonterra Cooperative Group.

Rakaia-based Synlait raised its forecast milk price for the 2017/18 season which officially ended yesterday to $6.65 per kilogram of milk solids, and said the average premium payment of 13 cents would lift the total payout to $6.78/kgMS. It announced an opening price forecast for 2018/19 of $7/kgMS, based on milk fat prices remaining firm throughout the season.

Hokitika-based Westland kept its prediction for the 2017/18 season at $6.10-to-$6.30/kgMS, which it acknowledged was not competitive, but raised its forecast for 2018/19 to $6.75-to-$7.20/kgMS as both its production and the outlook for its products improved.

The updates come after the country's dominant milk processor Fonterra on May 23 raised its forecast for the 2017/18 season by 20 cents to $6.75/kgMS and announced an opening price forecast for 2018/19 of $7/kgMS, saying global demand for dairy products "is expected to remain strong" especially in China and for butter and anhydrous milk fat in particular. Synlait and Westland were both also positive about the outlook for dairy products.

“The increase to $6.65 kgMS for this season reflects an increase in dairy commodity prices since our last update in January 2018,” Synlait managing director John Penno said in a statement. “We’re positive about next season but, like us, farmers should remain cautious because small changes in market dynamics can have a major influence on milk price.”

Synlait will confirm its final milk price for the 2017/18 season with its annual result in early September. The NZX-listed company last traded at $11.25, with its shares having surged 182 percent over the past year.

Westland chair Pete Morrison said the company's second-biggest dairy cooperative was seeing improved sales and a better outlook, as well as a "much improved performance" from its Infant and Toddler Nutrition (ITN) and UHT plants, while its consumer butter sales were "a star performer”.

Westland said its decision to enter the New Zealand retail consumer butter market with its 'Westgold' brand in August 2016 had paid off, as it had now sold more than 2 million packs and its brand was out-selling all other gourmet butters in New Zealand combined, and starting to reach sale levels comparative with more established brands.

Morrison said butter was expected to continue to be a good export earner for Westland in the 2018/19 season.

“We see robust demand for butter in all sectors growing further in the coming year, with grass-fed growth showing even further potential," he said. "Westland is in a great position to take advantage of the growing demand-for grass-fed dairy products.”

Making butter meant Westland then had to find markets for its skim milk powder and this, too, was looking promising, he said.

“We believe New Zealand SMP will continue to trade at a premium due to the global ITN demand.”

Morrison said quality issues with Westland's plant at Hokitika were improving.

“Our percentage of ‘right first time’ processing was not good, however, it has improved and that means less cost, and we are more able to deliver on time for the best price," Morrison said. "We are still not satisfied with our performance on quality for the past year and believe this will show further improvement in the '18/19 year."

As well as the quality issues, Westland's payment for the 2017/18 season had also been impacted by the former-tropical cyclone Fehi and the Lyttelton Port strikes, Morrison said.

(BusinessDesk)

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