Fonterra has again cut its forecast farmgate milk price for the current season due to reduced short-term dairy product demand, particularly from China.
The New Zealand co-operative narrowed the forecast range for the 2022/23 season from NZ$8.00 – NZ $8.60/kg of milk solids to NZ$8.10 – NZ$8.30 and reduced the midpoint from NZ$8.30/kg of milk solids to NZ$8.20.
“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 (GDT) prices have not recovered to the levels required to hold the previous midpoint for this season,” Miles Hurrell, Fonterra chief executive, said.
Fonterra
Hurrell said that the co-op had increased its full year earnings guidance as it expects demand to “gradually strengthen” as China’s economy continues to recover from the Covid-19 pandemic.
“The opening forecast farmgate milk price for next season of NZ$7.25 to NZ$8.75/kg of milk solids, with a midpoint of NZ$8.00/kg of milk solids, reflects an expectation that China’s demand for whole milk powder will lift over the medium-term.”
However, the Fonterra chief executive warned that the timing and extent of the recovery remains uncertain as China’s in-market whole milk powder stocks are estimated to be above normal levels due to increased domestic production.
“This is reflected in our wide opening forecast range for the season,” he added.
In recognition of the current pressure facing its milk suppliers, Fonterra has developed a new advance rate guideline “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,” Hurrell said.
Profit
Meanwhile, Fonterra has also reported a profit after tax of NZ$1.3 billion for the third quarter (Q3) of the 2023 fiscal year (FY23).
This is up NZ$854 million on the same period last year and includes the proceeds of the sale of its Chilean business, Soprole worth NZ$260 million.
“Excluding the net gain from divestments, our normalised profit after tax improved on last year, up $606 million to NZ$1,078 million, equivalent to 65 cents per share.
“This is due to strong performance in our ingredients channel, with continued higher margins in our cheese and protein portfolio, particularly casein and caseinate,” Hurrell said.
Fonterra confirmed that it was lifting its FY23 full year forecast normalised earnings to 65-80 cents per share from 55-75 cents per share, adding that it remains on track for a strong full year dividend.
“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,” Hurrell said.
This move, which requires a vote by shareholders and approval from the New Zealand High Court, will be worth around NZ$800 million.
Fonterra said it was continuing to take steps towards its sustainability goals and will announce “a scope 3, or on-farm emissions target” in the middle of this year.
“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,” Hurrell said.