Fonterra flags milk record
Fonterra has lifted its expectation for future earnings and milk payments to farmers as the outlook improves.
The co-operative lifted its forecast farmgate milk price to between $8.75 and $10.25 per kilogram of milk solids for the current season which started this month. That’s up from its opening forecast of $8.25 and $9.75 per kgMS announced last month.
The $9.50 per kgMS mid-point, which farmers are paid off, would set a new record.
Fonterra chief executive Miles Hurrell said the lift in the forecast milk price reflected milk supply and demand and the strong US dollar.
The company expects to pay farmers $9.30 per kgMS for the season just ended, the highest milk payment since Fonterra was formed in 2001, injecting almost $14 billion into New Zealand’s economy.
Higher farmgate milk prices put pressure on Fonterra’s margins as they raise the cost of inputs the company uses to make it products.
However, Fonterra has also raised its expectations for earnings for the next financial year, citing an expected recovery in some of its key markets as well as favourable margins in its ingredients business.
Fonterra announced earnings guidance of 30-45 cents per share for the 2022/23 financial year which starts in August. That’s ahead of its forecast range for this financial year of 25-35c.
‘‘While the co-op is in the position to be forecasting both solid earnings and a healthy milk price for the next year, significant volatility remains,’’ Hurrell said.
He said near-term headwinds may impact some of the company’s longer term targets. ‘We’re still on track for our 2030 financial targets, but the last few months have shown that there will be some bumps along the way.
‘‘A series of global events have changed some of the assumptions the co-op’s aspirations were based on. In particular, interest rates and inflation have lifted well above our assumptions, as have commodity prices in response to the continued strong demand for dairy.’’
That impacted debt costs in the short term and had also pushed up on-farm costs, he said.
‘‘As we look out to 2030, the fundamentals of dairy look strong and we continue to make good progress against our long-term aspirations,’’ Hurrell said.