Synlait trims forecast as Covid-19 threatens to hit demand

Synlait expects to pay $7.05 per kilogram of milk solids for the season just ending. Photo / Getty Images

Synlait Milk lowered its forecast milk payout for the season just ending and was conservative going forward as dairy prices drop and the Covid-19 outbreak threatens to bite into demand.

The milk processor expects to pay $7.05 per kilogram of milk solids for the season just ending, down from a prior forecast of $7.25/kgMS. The final number will be confirmed when Synlait releases its annual result in September.

"The decision to reduce our forecast base milk price for the 2019/2020 season is because, in line with other commodities, dairy prices have eased significantly this year and as a result are lower than we were anticipating when the forecast was set in January," chief executive Leon Clement said.

Dairy prices have fallen around 14 per cent since the first Global Dairy Trade auction this year.

Upcoming season

Meanwhile, Synlait's opening forecast for the upcoming season is $6/kgMS.

"We don't yet have a clear view of Covid-19's economic impact, but we do know it will impact demand, resulting in our decision to release a conservative opening forecast for the 2020/2021 season," Clement said.

The move follows Fonterra Cooperative Group, which last week said it expects to pay $7.10-to-$7.30/kgMS for the season ending May 31. It also adopted a wide forecast of $5.40-to-$6.90/kgMS for the upcoming season.

Fonterra chairman John Monaghan said it narrowed the range for the current season in response to softer demand relative to supply pushing down prices.

Looking out to next season, a global recession would reduce consumers' purchasing power, he said.