Synlait slices payout for current season
Canterbury dairy farmers have been hit as Dunsandel-based Synlait Milk cuts this season’s milk payout price to $4.40-$4.60 a kilogram of milk solids.
The reduction is from the previous forecast of $4.50 – $4.70 per kgMS, and follows similar cuts by other producers.
The farmers are being warned to keep expenses in line or lower than the price they will get from the processing factories like Synlait and Fonterra, and to keep an eye on the trend price.
Last month agricultural commentators predicted the next six months would be ‘‘brutal’’ for dairy farmers as they coped with tight cash flows following Fonterra’s announcement of a cut in this season’s milk payout price to $4.40 per kilogram of milk solids.
Synlait on Monday forecast a milk price for the upcoming 2015/2016 dairy season of $5.50 kgMS. Fonterra has already announced an opening forecast farmgate milk price of $5.25 per kilogram of milk solids for the 2015-16 season
‘‘Despite the small recovery in commodity prices we saw earlier this year, the market has not delivered the stability we had hoped for,’’ Synlait’s managing director John Penno said.
Federated Farmers dairy representative for Mid-Canterbury Jessie Chan-Dorman said farm working expenses in Canterbury for the 2013-14 season were $4.38/kg milksolids. Added to that were an average $1.21 of debt servicing costs per kgMS, according to the latest dairy economic survey. At current prices farmers were losing money on each kg of milksolids produced, she said.
‘‘It’s going to be a tough year for dairy farmers . . . most dairy farmers are increasing their borrowing this year.’’
Because every farm was differ- ent, each farmer would take a different strategy in dealing with debt and trying to reduce costs.
‘‘But understanding your farming system, making sure on an average long-term payout you are making a profit [is important,]’’ Chan-Dorman said.
‘‘[It’s] understanding what your costs are. Making sure when you spend a dollar you make a dollar wherever possible. It’s quite tricky in a year like this obviously.’’ A number of organisations were working with farmers on their mental wellbeing and advising them to help look out for families and neighbours, Chan Dorman said.
Penno said Synlait was ‘‘very aware’’ of how financially tough this season was for suppliers. It looked to provide more certainty by providing four forecasts a year and trying to make each forecast more accurate than the last.
With cashflows ‘‘very tight’’ Synlait was increasing the advances paid in the remainder of this year for the 2015/16 season to higher than usual levels. ‘‘There are ongoing discussions between the farmers and the banks. We don’t know any that are in real trouble.’’
Synlait had 161 suppliers, with more farmers due to join for the next season. It also received a ‘‘very small amount’’ of Fonterra milk.
The company was confident commodity prices would recover over time and the 2015/2016 forecast milk price ‘‘assumes we will see the beginning of this recovery from the current low prices,’’ Penno said.
‘‘The global oversupply is being met by soft demand across the board. This creates a lot of uncertainty in an already volatile market, so it will remain a fragile environment for the immediate future."
Factors contributing to the global oversupply include Russia’s ban on dairy imports, the removal of dairy quotas in Europe and low demand from China, Penno said. ‘‘The important thing with our 2015/2016 forecast is the associated cash flow our suppliers will receive through advance rates."
Synlait had deliberately started advance rates higher than usual to assist farmers with cash flows through the early spring, Penno said. They would return to normal levels based on the forecast milk price soon after.
Penno said retrospective payments to suppliers for the current season would remain unchanged until the final payment in October.
Synlait expects to announce the final milk price for the 2014/2015 season in late September, along with an update to 2015/2016 forecast milk price and advance rates.