Sunday, March 3, 2024

NZX milk price shifts

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As a result of the increases at GDT 315.
The NZX forecast has a range of $9.42-$10.04/kg MS.
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By Alexandria Winning-Browne, NZX dairy analyst

Fonterra’s year-end results have highlighted milk price, earnings and forward views from the Co-Op. Fonterra’s final farmgate milk price for the 2021-22 season washed up at $9.30/kg MS, with total payable dividend 20 cents/share. Fonterra retained their 2022-23 forecast milk price at $8.50-$10.00/kgMS, with a midpoint of $9.25/kgMS, and announced normalised earnings guidance for the current season at 45-60 cents/share. 

Key takeaways from this season’s final milk price is the increase in cash and capital costs, up 10% YoY due to the higher milk price and ending inventory. Lower milk collections also helped to push this milk price higher, with a 4% decline YoY. Fonterra’s FX rate cost the milk price 48 cents/kg MS, compared to spot prices. Average lactose costs increased 14.6% YoY, however less lactose was purchased, resulting in a 10% price increase of lactose, around 46 cents/kg MS. 

This final milk price also settled the September 2022 milk price future, 1c/kg MS below where the contract was trading prior to the announcement. 

Looking at the current season, the NZX milk price forecast has shifted to $9.64/kg MS, pushing 20c/kg MS higher over the past week. This is with the NZD:USD exchange rate manipulated to 0.6390. With the volatility of the NZD:USD at the moment, the likelihood that this FX rate is actually achieved by Fonterra this season is up for contention. 

The NZX forecast has a range of $9.42-$10.04/kg MS. This midpoint and range is reflecting Fonterra’s current expectations, but falls much short of the September 2023 milk price future, priced at $10.30/kg MS at the time of writing. 

The 2023-24 season’s forecast sits at $9.94/kg MS. This forecast comes with a range of $9.67-$10.53/kgMS. The futures market is pricing milk for this season at $9.90/kg MS.

What else happened in dairy last week?

Synlait announces year end results
Synlait’s results highlighted a successful year and return to profitability for the company. It announced a revenue increase of 21% year-on-year to a total of $1.66 billion, while recording an increase of $67 million to net profit, now sitting at $38.5 million. The company’s EBITDA increased by $91.8m to $129.1m, with a net debt to EBITDA ratio of 2.6 times.

The company attributed these results to a strategy refresh, with chair John Penno stating “while rebuilding revenue, reducing unnecessary costs, releasing working capital, and decreasing capital expenditure, we have focused on building scale and capability in the highest returning segments available to the New Zealand dairy industry”. 

The dairy company also took the opportunity to announce their season-end milk price, with a final average base milk price of $9.30/kg MS and an additional incentives payment of $0.29c/kg MS. Synlait also reaffirmed their current season milk price forecast of $9.50/kg MS, attributing the would be record price to a tight global milk supply, expecting commodity prices to push higher. 

Chief executive Grant Watson discussed these results, stating, “we have progressed our strategy, structure, capability, and culture and lifted our execution, but there is much to do”. The company has returned their ingredients business to profitability, hoping to push this into the new year. Production will begin early next year for a large international customer, and with new brands into China, the outlook for this year looks positive.

Argentina’s milk supply has rebounds
Argentina’s milk supply has rebounded, however exports still take a hit. Argentina’s government has released August milk production figures, highlighting a rebound after a two-month decline in June through July. Argentina’s August milk production increased 0.6% YoY, a massive feat considering the record production numbers from 2021. YTD this brings Argentina’s production up by 0.7%, and from July, the figure sits 7.3% higher. 

Domestic processing has been impacted by previous months, declining 10.6% YTD for milk powders; however, liquid milk and cream, cheese, and other commodities have increased 0.1%, 1.2%, and 1.7% YTD. 

The domestic milk price also continues to increase, with the current milk price sitting at AR $731.98/kg MS, 4.7% higher from the July figure and 62.6% YoY. Despite this, the current FX rate has the US equivalent price at US$4.98/kg MS, down six cents from July’s USD figure. 

While August’s production increased, production declines in June and July have followed through into exports with August’s exports reporting a decline. Argentina’s August total dairy exports declined 7% YoY, but strong exports earlier in the year have the nation sitting up by 10% YTD. From a value perspective, total dairy exports increased 7% YoY bringing the YTD number up to a 31% increase. 

Milk powders have shifted downwards in August exports, with both commodities reporting declines. WMP and SMP declined 18% and 31% YoY, though strong results in previous months still have both powders up by 17% YTD. North Africa drove declines for both powders, mitigated by South America, with increases of 186% and 35% YoY for WMP and SMP respectively. 

Both milk fats also experienced declines, with AMF and butter down 35% and 1% YoY respectively. AMF declines are no shock with Mexico having just boosted their AMF purchases from the States. 

On the other hand, cheese and whey both experienced increases in August, up 15% and 8% YoY respectively. These figures were driven by Asia and South America.

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