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This is why the Fonterra starting forecast for next year is $7 !!
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Originally Posted by FarmerHamilton
This is why the Fonterra starting forecast for next year is $7 !!
My point being, is there any benefit to the Dairy company since all it does is increase the farmgate price (ie. cost of sales). Is it linked directly or does the dairy company take a margin.
I note that Synlaits milk supply cost is linked to the Farmgate price (less upto 25c)
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CJ, you are quite correct - the FX rate influences the price Synlait will have to pay for supply. They are in direct competition for supply of raw material, and in order to compete they will have to largely pass on any perceived FX benefits to suppliers. FH should be pushing this line for Synlait Farms, not Milk
For me, the volumes current holders sell into Selldown Co will be the most telling action for the IPO.
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Originally Posted by Xerof
CJ, you are quite correct - the FX rate influences the price Synlait will have to pay for supply. They are in direct competition for supply of raw material, and in order to compete they will have to largely pass on any perceived FX benefits to suppliers. FH should be pushing this line for Synlait Farms, not Milk
For me, the volumes current holders sell into Selldown Co will be the most telling action for the IPO.
Agree that the lower the NZD the higher the COGS ... ie Farmgate Milk Price BUT ... Synlait Milk receive their margin in USD not NZD so when the fx rate falls theoretically their profits in NZ should rise , sure the input costs go up ( as the Fonterra payout rises ) but the margin they make converting raw milk into high value formula and powders ( don't forget the fat ... they make a lot of money from the little AMF plant that no one talks about ) is in USD which obviously is a lot more NZ$ at .77 rather than .85.
5 days to go to book build , hopefully Portugal, Greece , Turkey & Egypt can keep it together for another few days !!
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Member
Originally Posted by CJ
My point being, is there any benefit to the Dairy company since all it does is increase the farmgate price (ie. cost of sales). Is it linked directly or does the dairy company take a margin.
I note that Synlaits milk supply cost is linked to the Farmgate price (less upto 25c)
I've been pondering this issue as well. I'm not going to be providing answers but this is how I see it:
The farmgate milk price is based on the 'world price' - essentially the world price less costs that Fonterra incurs in collecting the milk and (not too sure) basic processing costs. The farmgate milk price also accounts to an extent the opportunity costs of milk collection. And because the farmgate milk price is paid by Synlait to farmer-suppliers, indeed a higher farmgate milk price means additional costs of production for Synlait.
I think it will be all doom and gloom if the story stopped here. But the flipside is that dairy-exports are also linked to the 'world price'. While a higher world dairy prices would mean a higher farmgate price, it also means a higher price that milk powders, baby formula etc command, translating to higher revenue.
I wouldn't have a clue how the COGS effect would weigh against the revenue effect so I won't elaborate further. Rather I'm more interested in pondering how Synlait will be affected when Fonterra enters the Chinese baby formula market.
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