A glance at 3 NZX dairy stocks as dairy auction prices jump 4.1%

Highlights

• Dairy prices touched an 8-year high at the latest Global Dairy Trade (GDT) auction with the index jumping 4.1%.
• Synlait Milk raised its forecast milk price to $9.25/kgMS from $8.00/kgMS last week for the 2021/22 season.
• Fonterra lifted its farmgate milk price forecast to $8.90-$9.5/kgMS from $8.40-$9.00 per kgMS for the 2021/22 season. 

Dairy prices touched an 8-year high at the latest Global Dairy Trade (GDT) auction, propelling speculations that forecast milk payouts to farmers may increase.

The Global Dairy Trade Price Index soared 4.1% to 1455 after reporting a gain of 4.6% in the prior auction in mid-January.

NZX dairy analyst Stuart Davison stated that buyers knew that the milk supply would stay restricted globally in the short term. He stated that another high auction result can drive NZ farmgate milk price predictions higher and raise expectations for next season’s estimates.

Let’s look at how these 3 NZX dairy stocks are doing this month.

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The a2 Milk Company Limited (NZX:ATM; ASX:A2M)

Infant formula company ATM had been in the spotlight for a week after a media speculation that the dairy company could be a takeover target for a Canadian dairy firm, Saputo. ATM’s shares have fallen by 53.57% YTD after the company downgraded its earnings guidance one after the other.

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The Company is focusing on the China market, reviewing its brand strategy, evaluating its English label IMF's path to market and is looking at growth prospects in other key markets like the US, Australia and others.

On 3 February, at the time of writing, ATM was trading at $5.63, down 1.4%.

Synlait Milk Limited (NZX:SML)

Dairy processing company Synlait Milk raised its forecast milk price to $9.25/kgMS from $8.00/kgMS last week for the 2021-2022 season.

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Grant Watson, Synlait CEO, stated that dairy commodity prices had risen substantially due to greater demand than supply. Moreover, COVID-19-induced curbs have affected production and supply chains, magnified by increased production costs.

On 3 February, at the time of writing, SML was trading at $3.4, down 1.45%.

Fonterra Co-operative Group Limited (NZX:FCG)

Fonterra lifted its farmgate milk price forecast from $8.40-$9.00 per kgMS to $8.90-$9.50 per kgMS for the 2021/22 season on 25 January 2022.

Miles Hurrell, FCG’s CEO stated that the new increased midpoint of $9.2 per kgMS will add $13.8 billion to the NZ economy. He added that consistent demand for dairy amid a constrained supply market led to the lift in prices.

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The Group maintained its current 2021/22 earnings guidance of 25-35 cps. FCG is keeping an eye on the rising inflationary strain, increased volatility and COVID-19-related disruptions.

On 3 February, at the time of writing, FCG was trading flat at $3.01.

Bottom Line

Milk price predictions are likely to go up and production may fall for the 2021/22 season as increasing costs and bad weather have struck the dairy production in NZ.

(NOTE: Currency is reported in NZ Dollar unless stated otherwise)