Fonterra is providing a strong opening milk price forecast for next season based on continued demand for dairy coupled with constrained global supply.
Its opening forecast farmgate milk price for the 2022/23 season is between $8.25 to $9.75 per kg of milksolids – with a mid-point of $9 per kg.
For the 2021/22 season, Fonterra has maintained its 2021/22 forecast farmgate milk price of $9.10 to $9.50 per kgMS.
At a midpoint of $9.30 per kgMS, this would be the highest forecast milk price in the co-op’s history and would see it contribute almost $14 billion into the New Zealand economy through milk price payments.
Chief executive Miles Hurrell says the long-term outlook for dairy remains positive, despite recent geopolitical and COVID-19 related events impacting global demand in the short-term.
“On the supply side, growth from key milk producing regions is expected to remain constrained as high feed, fertiliser and energy costs continue to impact production volumes.
“These demand and supply dynamics are expected to support dairy prices in the medium to long-term.
“However, we are operating in an increasingly volatile global environment and are managing a wider range of risks than usual.
“This includes the potential for further impacts from COVID-19, financial markets and foreign exchange volatility, global inflationary pressures, a tightening labour market, increasing interest rates, geopolitical events, as well as the possible impact on demand from higher dairy prices.
“This is why our 2022/23 forecast range is so wide at this point in the season,” Hurrell says.
Business performance
Fonterra’s sales volumes were down as a result of lower milk collections and the timing of sales due to short-term impacts on demand for the nine months to April 30.
This included the lockdowns in China, the economic crisis in Sri Lanka and the Russia-Ukraine conflict.
Total group normalised EBIT was $825m, down $134m reflecting lower sales volumes, continued pressure on margins from the significantly higher milk price, on-going COVID-19 disruptions, and the rapid decline of the Sri Lankan Rupee.
This was also reflected in Fonterra’s normalised profit after tax of $472m, down $115m and reported profit after tax of $472m, down $131m.
Hurrell says the co-op is actively managing the challenges arising from COVID-19 and other geopolitical and macroeconomic events.
“However, increasing market volatility and uncertainty, on-going supply chain disruptions and growing inflationary pressures have added increased complexity,” he says.
Commenting on the rest of the year, Hurrell says the co-op is maintaining its forecast earnings guidance of 25 to 35 cents per share.
“While favourable price relativities in the fourth quarter are positive for earnings, we expect continued pressure on our margins due to the higher milk price coupled with the normal seasonal profile of our business.”
“In sustainability, we have signaled our aspiration to be net zero by 2050, and we support the Government’s recently announced plan to reduce on-farm emissions through the new Centre for Climate Action on Agricultural Emissions.
“We believe methane is New Zealand’s greatest climate change challenge and finding a solution will be a game-changer. That’s why we recently announced we’re expanding the trial of methane-reducing seaweed as a supplementary feed for cows.
“Lab trials have shown the seaweed has significant potential to reduce emissions and, if on-farm trials are a success, our partnership with Sea Forest means our farmers will be at the front of the queue. This is just one of a number of initiatives we have underway in this area.
“We have also announced the trial of an electric milk tanker – the first of its kind in New Zealand,” Hurrell says.
