Reduced demand dents Fonterra’s farmgate milk price

25-May-2023 - Last updated on 25-May-2023 at 12:20 GMT

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Fonterra has reduced its 2022/23 farmgate milk price range to NZ$8.10-$8.30 kgMS from NZ$8.00-$8.60 kgMS with a midpoint of 8.20 kgMS from a previously announced NZ$8.30 kgMS.

CEO Miles Hurrell said: "We’re well through the season now, with almost all of our milk contracted, giving us more certainty on where we’ll end the season. Global Dairy Trade prices have not recovered to the levels required to hold the previous midpoint for this season. For these reasons, we have narrowed the forecast range for the 2022/23 season."

Fonterra also unveiled a wide opening forecast farmgate milk price range for next season – it's NZ$7.25 to $8.75 per kgMS, with a midpoint of $8.00 per kgMS. "The opening forecast Farmgate Milk Price for next season reflects an expectation that China's demand for whole milk powder will lift over the medium-term," explained Hurrell.

He said the co-op expects demand to ‘gradually strengthen’ over the course of FY24 as China's economy recovers post-COVID-19. "However, the timing and extent of this remains uncertain, with China's in-market whole milk powder stocks estimated to be above normal levels following increased domestic production," he added.

Hurrell said that the co-op has designed new Advanced Rate guidelines ‘to get cash to farmers earlier in the season’. "Our strong balance sheet allows us to make these changes and we will be using this new Advance Rate guideline going forward, starting with the season about to commence."

Fonterra also reported normalized profit after tax of NZ$1,078m, up NZ$606m, excluding net gains from dividends. "This is due to strong performance in our Ingredients channel, with continued higher margins in our cheese and protein portfolio, particularly casein and caseinate," explained Hurrell.

"These favourable price relatives have continued longer than expected, and we’re also seeing improved performance coming through in our Foodservice and Consumer channels, in particular in Global Markets. As a result, we have lifted our FY23 full year forecast normalised earnings to 65-80 cents per share from 55-75 cents per share and remain on track for a strong full year dividend."

Meanwhile, profit after tax stood at NZ$1,326m for Q3 FY23, taking into account the NZ$260m gain on the sale of Soprole. "With the sale of Soprole now complete, we are bringing forward payment of our proposed capital return of around 50 cents per share and unit from October 2023 to August 2023," said Hurrell. The capital return amount to around NZ$800m.

On sustainability, the co-op said it will announce a scope 3 emissions target in mid-2023. "Meetings are underway with farmers where we’re sharing more information on what a target will look like and how we can collectively achieve it," the co-op's CEO explained.

Fonterra also announced it has invested in Ruminant BioTech, a start-up that's developing slow-release methane-inhibiting bolus, through the co-op's Centre for Climate Action JV.

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