Dairy prices likely to stay high in near term? A lens on ATM, SML, FCG

Highlights

• Dairy prices are expected to stay on a higher side in the near term, as per a bank’s report.
• The bank raised the forecast farmgate milk price for NZ to $9.7 per kgMS for the 2021-22 season.
• A restricted global supply and increased food security concerns due to the Russia-Ukraine conflict are driving dairy prices higher. 

The latest report from Rabobank reveals that dairy prices are expected to stay on a higher side in the near term due to increased market uncertainty amid the Russia-Ukraine war.

However, the bank expressed less confidence in the longer-term outlook of dairy prices as it remained dependent on consumer behaviour and market conditions.

Rabobank increased the forecast farmgate milk price for NZ to $9.7 per kgMS for the 2021-22 season. High production costs, weather-related issues, supply constraints and persistent disruptions from the COVID-19 pandemic have impacted dairy farmers globally.

On this note, let’s see how these 3 NZX dairy stocks are performing.

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

Infant nutrition company ATM’s performance in the first half of FY22 was in line with its expectations, putting ATM in a strong position to execute its new growth strategy and post revenue growth in FY22.

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Market conditions have stayed tough with the China IMF market falling due to the impact of the lower birth rate. Though the Group’s sales outlook has improved for FY22, it is not likely to lead to higher earnings due to higher brand reinvestment.

On 11 March, at the time of writing, ATM was trading at $5.65, down 2.08%.

Fonterra Co-operative Group Limited (NZX:FCG)

Fonterra revealed in its global dairy update for February that monthly production fell across regions, but exports were up by 0.6% in NZ and 53.1% in Australia in December 2021 compared to the same month in 2020.

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Monthly imports were up in the Middle East and Africa, Latin America and Asia but were down in China. FCG’s NZ milk collection was down by 6.1% to 158.1 million kgMS for January 2022 on the same month in the prior season.

FCG also entered into a GDT partnership with the NZX and the EEX for further growth while also expanding its carbon zero Simply milk range.

On 11 March, at the time of writing, FCG was trading flat at $2.98.

Synlait Milk Limited (NZX:SML)

Dairy processing company Synlait Milk raised its forecast base milk price from $8/kgMS to $9.25/kgMS for the 2021/2022 season in January due to high dairy commodity prices, owing to increasing production costs and restricted supply amid the COVID-19 pandemic.

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Synlait is due to make its next milk announcement in May 2022. SML is due to announce its H1 results for the 6 months ended 31 January 2022 on 1 April 2022.

On 11 March, at the time of writing, SML was trading at $3.26, down by 1.21%.

Bottom Line

Dairy commodity prices are likely to remain at high levels in the start of the season amid restricted global supply and increased food security concerns due to the Russia-Ukraine conflict.

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