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Synlait Milk 'confident' in dairy price revival

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Synlait, unveiling a higher milk price forecast for 2015-16, said it was "confident" of revival in dairy markets kicking in this season, even as data showed New Zealand producers culling cows at a record rate.

New Zealand-based Synlait said that "for the immediate future… it will remain a fragile environment" for dairy markets, citing the dent to prices from the lifting of European Union production quotas, and setbacks to Chinese and Russian imports.

"Global oversupply is being met by soft demand across the board," the group said.

However, "we are confident commodity prices will recover over time," said John Penno, the Synlait managing director.

"Our 2015-16 forecast milk price assumes we will see the beginning of this recovery from the current low prices."

"Small recovery"

Synlait said it expected to pay farmers NZ$5.50 per kilogramme of milk solids over 2015-16, which started this month.

That is above the figure of NZ$4.40-4.60 per kilogramme of milk solids it estimated for last season, down from a previous figure of NZ$4.50-4.70, reflecting the soft demand.

"Despite the small recovery in commodity prices we saw earlier this year, the market has not delivered the stability we had hoped for," said Mr Penno.

Synlait's estimate for this season is also above the price forecast of NZ$5.25 per kilogramme of milk solids that Fonterra, the top New Zealand processor, has announced.

However, it falls short of the NZ$5.60-6.00 forecast last month by New Zealand cooperative Westland.

Margin squeeze

Dairy prices are down 38% year-on-year according to Fonterra's GlobalDairyTrade index.

The decline has taken milk costs well below production costs, which producers' group DairyNZ estimates at NZ$5.70 per kilogramme of milk solids.

The margin pressure has prompted many farmers to shrink herds, with New Zealand cow slaughter hitting a record 52,000 in the week to May 16.

That was above the 45,000 head in the same week the previous year.

Synlait shares closed down 2.9% at NZ$2.65 in Auckland.

By Agrimoney.com

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