NZX-listed dairy stocks in news as global milk prices rise

Highlights

• Global dairy prices rose in the GDT on 7 September
• The price of whole milk powder, which influences the payout to farmers, was up 5.1%
• Prices of butter, cheddar and skim milk powder also increased in the GDT

Global dairy prices rose in the global trading auction (GDT) overnight, held on 7 September.

The average price in the fortnightly sale rose 4.9% to US$4001 per tonne. It had fallen 2.3% in the August auction. This is only the second time in the last 13 auctions that the price has risen. The price of whole milk was up 5.1%, and prices for other dairy products, including butter, cheddar and skim milk powder also increased.

The price of whole milk powder, which strongly influences payouts to local farmers, rose 5.1% to US$3310 per tonne.

Prices for other products, including butter, cheddar, and skim milk powder also increased.

The demand is picking up. In Southeast Asia, particularly, there is a high level of demand for whole milk powder and anhydrous milk fat. For last few years, it was China that was driving the demand, but according to the latest trends, now Southeast Asian buyers are coming to New Zealand for their dairy requirements.

Local farmgate milk prices have also increased following the last auction.

Against this background, let’s see how dairy stocks are performing.

 A2 Milk Company (NZX:ATM) 

ATM is one of the biggest dairy companies in NZ and announced its full-year results on 29 August. It delivered double-digit revenue and earnings growth in FY22. The company’s EBITDA was up 59.0% and the net profit after tax (NPAT) improved 42.3% to NZ$114.7 million.

The solid financial performance was driven by its new growth strategy and improved execution. More specifically, the Company took several steps in inventory management in CY21. The strategy was focused on capturing the full potential of the China market. This resulted in ATM achieving new highs in the branded health segment and a record market share. Even though the COVID-19 pandemic hurt its Chinese infant formula business, the outlook is now positive for the Company.

On 9 September, the company was trading down 1.12% to NZ$3.470, at the time of writing.

Source: © 2022 Kalkine Media®

Fonterra Cooperative Group (NZX:FCG)  

FCG, the world’s biggest dairy exporter, raised its earnings forecast for FY23 till 31 July 23 to 45 to 60 cents per share, up from 30 to 45 cents per share, on 9 September. According to the release, this was made possible due to the ongoing increase in demand for dairy. However, the Company lowered its forecast for milk collections for the 2022/2023 season to 1,495 KgMS, down from 1,510 kgMS due to weather conditions.

The Company said that the demand was showing signs of rising by the end of FY22 and had continued to drive prices up across the entire product range, particularly cheese. There has been a surge in the price of whole milk powder and strong offshore demand for protein and cheese.

On 9 September, the stock was trading 4% up at NZ$3.120, at the time of writing.

Synait Milk Company (NZX:SML)

Synlait is another big company operating in New Zealand. Of late, its director of sustainability, brand, and beverages, Hamish Reid, decided to quit the company. 

He would be returning to his sustainability consulting business, which brought him to Synlait. Mr Reid has been behind the company’s sustainability plan, which is recognised as the best in the industry.

Earlier, SML increased its forecast for the milk price to NZ$9.50/kgMS from NZ$9.00 kgMS for the 2022/2023 season. 

On 9 September, the stock was trading up 0.29% at NZ$3.470 at the time of writing.

Bottom Line: Due to an increase in demand for dairy products, companies have lifted their earnings forecasts and are expecting to improve their profits in FY23.