NZX-listed South Island dairy products manufacturer, Synlait Milk, said it had revised its forecast milk price for the 2014/15 down from $5.00 per kg of milk solids to $4.40/kg, and warned that its first half result would be "substantially lower" than the previous first half.
Synlait chairman Graeme Milne said the milk price revision was the result of several factors at play in the global market, which were causing continued downward pressure on prices
"Low commodity prices are persisting as the global market struggles with the current over supply of milk products," Milne said in a statement.
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"We remain confident in previous guidance around our full year 2015 performance, although there is no doubt that the world continues to be a volatile place," he said.
Milne said Synlait would see the benefit of increased infant formula and nutritional sales in the current financial year, but that this would be largely offset by increased operating and funding costs.
"We expect the majority of our higher value product sales to take place in the second half of FY2015, which will therefore be reflected in our full year results," he said.
"As a consequence of this timing difference our interim results will be substantially lower than the previous corresponding period," he said.
Synlait managing director John Penno said over-supply in the global dairy market was unlikely to change in the short term, however prices were expected to strengthen again in the medium term as supply and demand rebalances.
"Critical to this rebalancing is how quickly dairy farmers around the world respond to lower milk prices and when the volume of whole milk powder sales return to previous levels," Penno said.
Penno also acknowledged the revised forecast would have an impact on Synlait suppliers.
"With the low forecast market milk price, it is shaping up to be a tough year for our suppliers and cash flows will be tight," he said. "But they are aware of larger market volatility and many of them have been planning accordingly," he said.
NZX shares last traded at $3.40, and have fallen by 34c or 9 per cent since this time last year.
Read today's Synlait announcement here: