Why the Synlait Milk (ASX:SM1) share price is rocketing higher today

The Synlait Milk (ASX: SM1) share price is up more than 5% in early trading today. We take a look at why shares are surging.

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The Synlait Milk Ltd (ASX: SM1) share price is up 5.3% in morning trading, following an upgrade on the company’s base milk price forecasts.

Why did Synlait Milk upgrade its milk price forecast?

In an update released to the ASX this morning, Synlait Milk increased its forecast base milk price for the 2020–2021 season by 12.5%. The new forecast is $7.20 /kg milk solids (kgMS), up from $6.40 /kgMS.

The company decided to increase its base milk price forecast after a large rise in dairy commodity prices over the past few months. Synlait believes the rest of this milk season will see commodity prices remain near their current levels.

Commenting on the revised price forecast, Synlait Milk’s supply manager David Williams said:

Despite the wider global uncertainty, dairy commodity prices have remained robust and a higher forecast base milk price will be welcomed by our Synlait farmer suppliers. We are grateful for their continued support.

The company said it will continue monitoring price movements for its farmer suppliers, noting that its forecasts are based on the best information currently available. Its next price update is expected in May.

Synlait Milk company and share price snapshot

Synlait Milk is a New Zealand-based company, listed on both the New Zealand and Australian share exchanges. The company works with more than 200 milk suppliers to provide global access to quality dairy products. Synlait’s cheese manufacturing facility, Talbot Forest Cheese, is based in Temuka.

Synlait shares first began trading on the ASX in November 2016. The company has a market cap of $949 million.

2020 was a difficult year for Synlait shareholders. The share price crashed more than 48% through to 19 March during the wider COVID-19 market panic. Though shares rebounded strongly from there, gaining 66% by 17 April, it’s been mostly downhill from there.

Synlait’s largest customer is A2 Milk Company Ltd (ASX: A2M). And a2 Milk has taken an unexpectedly hard hit from reduced daigou trading. (That’s where individuals or syndicates purchase products – baby formula in this case – in Australia and resell those in China.) As a result, in December Synlait forecast that its 2021 financial year net profit after tax (NPAT) will be roughly half of the 2020 figures.

Over the past 12 months, the Synlait Milk share price is down 46%. Year-to-date so far in 2021, its shares are down 7%.

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Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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