Fonterra lifts milk price following China rebound

7th December 2020 By Paul Yandall | paul@foodticker.co.nz | @foodtickernz

Strong demand for New Zealand dairy has seen Fonterra lift the bottom end of its forecast farmgate milk price.

The dairy co-op said on Friday that it had narrowed its forecast range to $6.70-$7.30 per kg of milksolid. It had previously forecast $6.30-$7.30 per kg of milksolid.

Chief executive Miles Hurrell said: “This means the midpoint of the range, which farmers are paid off, has increased to $7.00 per kg,” up from the previous mid-point of $6.80.

“China is continuing to recover well from Covid-19 and this is reflected in recent Global Dairy Trade auctions with strong demand from Chinese buyers, especially for whole milk powder, which is a key driver of the milk price,” he said.

“The impact of Covid-19 continues to play out globally, and we continue to have a watchful eye on the increasing Northern Hemisphere milk production and the New Zealand dollar.”

However, Hurrell added that Fonterra had contracted a good proportion of its sales book for this time of the season, which gave it the confidence to narrow and lift the bottom end of the forecast farmgate milk price range.

On the back of the updated 2021 forecast farmgate milk price, Fonterra was now expected to pump $10.5bn into New Zealand economy – $500m more than it forecast in October.

The diary giant also provided a first quarter earnings update in which it reported a solid start to the 2021 financial year and reconfirmed its forecast earnings guidance.

In Q1, total group normalised earnings before interest and tax was $250m, up $72m on last year after it “continued to make progress on implementing its strategy”, according to Hurrell.

“Despite ongoing market disruptions from Covid-19, we are continuing to build on the momentum achieved in the last financial year,” he said.

It’s Greater China Foodservice business was the stand-out performer with the co-op expanding its foodservice business into another 13 cities in China, bringing the total number of cities it operated in to more than 360. 

Fonterra held its 2020/21 earnings forecast of 20-35 cents per share.